PILGRIM AMERICA INVESTMENT FUNDS INC, 485APOS, 1998-08-28

PILGRIM AMERICA INVESTMENT FUNDS INC
485APOS, 1998-08-28

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As filed with the Securities and Exchange Commission on August 28, 1998

Securities Act File No. 2-34552
Investment Company Act File No. 811-1939

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

Registration Statement Under The Securities Act Of 1933 /x/

Pre-Effective Amendment No. ___ / /

Post-Effective Amendment No. 39 /x/

and/or

Registration Statement Under The Investment Company Act Of 1940 /x/

Amendment No. 27 /x/
(Check appropriate box or boxes)

Pilgrim America Investment Funds, Inc.
(Exact Name of Registrant Specified in Charter)

40 North Central Avenue, Suite 1200
Phoenix, AZ 85004
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (800) 334-3444

James M. Hennessy, Esq.
Pilgrim America Group, Inc.
40 North Central Avenue, Suite 1200
Phoenix, AZ 85004
(Name and Address of Agent for Service)

With copies to:
Jeffrey S. Puretz, Esq.
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20005

It is proposed that this filing will become effective (check appropriate box):

/ / Immediately upon filing pursuant to paragraph (b) / / on (date) pursuant to paragraph (b)

/x/ 60 days after filing pursuant to paragraph (a)(1) / / on (date) pursuant to paragraph (a)(1)

/ / 75 days after filing pursuant to paragraph (a)(2) / / on (date) pursuant to paragraph (a)(2) of Rule 485
</TABLE>

If appropriate, check the following box:

/ / This post-effective amendment designated a new effective date for a
previously filed post-effective amendment.

<PAGE>

PILGRIM AMERICA INVESTMENT FUNDS, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>

N-1A Item
Location in Prospectus
Part A (Caption)
<S> <C> <C>

Item 1. Cover Page.............................................. Cover Page
Item 2. Synopsis................................................ The Equity Funds at a Glance; The
Income Funds at a Glance;
Summary of Expenses
Item 3. Condensed Financial Information......................... Financial Highlights
Item 4. General Description of Registrant....................... The Funds' Investment Objectives
and Policies; Investment
Practices and Risk
Considerations
Item 5. Management of the Registrant............................ Management of the Funds
Item 5A. Management's Discussion of Fund Performance............... *
Item 6. Capital Stock and Other Securities...................... Dividends, Distributions & Taxes;
Additional Information
Item 7. Purchase of Securities Being Offered.................... Pilgrim America Purchase Options
Item 8. Redemption or Repurchase................................ How to Redeem Shares
Item 9. Pending Legal Proceedings............................... Not Applicable
</TABLE>

Location in Statement of
Part B Additional Information
(Caption)
<S> <C> <C>

Item 10. Cover Page.............................................. Cover Page
Item 11. Table of Contents....................................... Table of Contents
Item 12. General Information and History......................... General Information and History
Item 13. Investment Objectives and Policies...................... Supplemental Description of
Investments and Techniques;
Investment Restrictions
Item 14. Management of the Fund.................................. Management of the Fund
Item 15. Control Persons and Principal Holders of Securities..... Management of the Fund; General
Information
Item 16. Investment Advisory and Other Services.................. Management of the Fund
Item 17. Brokerage Allocation and Other Practices................ Portfolio Transactions
Item 18. Capital Stock and Other Securities...................... Distributions; General Information
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered........................... Determination of Share Price;
Additional Purchase and
Redemption Information
Item 20. Tax Status.............................................. Tax Considerations
Item 21. Underwriters............................................ Management of the Fund
Item 22. Calculation of Performance Data......................... Performance Information
Item 23. Financial Statements................................... Financial Statements
</TABLE>

__________________

* Contained in the Annual Report of the Registrant

<PAGE>

PILGRIM AMERICA FUNDS
PROSPECTUS
November 1, 1998

40 North Central Avenue, Suite 1200, Phoenix, AZ 85004
(800) 992-0180

The Pilgrim America Funds are a family of diversified, open-end and closed-end
management investment companies. This Prospectus describes the open-end
investment company portfolios, also known as mutual funds (the Funds), each of
which have its own investment objectives and policies.

Pilgrim America Bank and Thrift Fund Pilgrim America High Yield Fund
(Bank and Thrift Fund) (High Yield Fund)
Pilgrim America MagnaCap Fund Pilgrim America Strategic Income Fund
(MagnaCap Fund) (Strategic Income Fund)
Pilgrim America MidCap Value Fund Pilgrim Government Securities Income Fund
(MidCap Value Fund) (Government Securities Income Fund)
Pilgrim America LargeCap Value Fund
(LargeCap Value Fund)
Pilgrim America Asia-Pacific Equity Fund
(Asia-Pacific Equity Fund)

</TABLE>

Each Fund offers different classes of shares, with varying types and amounts
of sales and distribution charges. These Pilgrim America Purchase OptionsTM
permit you to choose the method of purchasing shares that best suits your
investment strategy.

This Prospectus presents information you should know before investing. Please
keep it for future reference. A Statement of Additional Information about each
Fund, dated November 1, 1998, as amended from time to time, has been filed
with the Securities and Exchange Commission and is incorporated by reference
into this Prospectus (that is, it is legally considered a part of this
Prospectus). This Statement is available free upon request by calling Pilgrim
America Group, Inc. (Shareholder Servicing Agent) at (800) 992-0180.

Investment in the Funds involves investment risk, including risk of loss of
principal. The Funds' shares are not obligations, deposits, or accounts of a
bank and are not guaranteed by a bank. In addition, the Funds' shares are not
insured by the Federal Deposit Insurance Corporation, the Federal Reserve
Board, or any other agency.

Like all mutual fund shares, neither the Securities and Exchange Commission
nor any state securities commission have approved or disapproved these
securities or passes upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.

<PAGE>
THE EQUITY FUNDS AT A GLANCE*

<TABLE>
<CAPTION>
Fund Objectives and Policies Strategy
<S> <C> <C>

Bank and Long-term capital appreciation Portfolio securities are selected principally
Thrift Fund and income is its secondary on the basis of fundamental investment value
objective. and potential for future growth, including
securities of institutions that the Fund
Invests primarily in equity believes are well-positioned to take advantage
securities of national and of opportunities currently developing in the
state-chartered banks (other than banking and thrift industries.
money center banks), thrifts, the
holding or parent companies of such Principal risk factors: exposure to financial
depository institutions, and in and market risks that accompany an investment
savings accounts of mutual thrifts. in equities, and exposure to the financial and
Up to 35% of the Fund's total market risks of the banking and thrift
assets may be invested in equity industries, which may present greater risk
securities of money center banks, than a portfolio that is not concentrated in a
other financial services companies, group of related industries. Bank and thrift
other issuers deemed suitable by stocks may will be impacted by state and
the Investment Manager, debt federal legislation and regulations and
securities, and securities of other regional and general economic conditions.
investment companies.
You can expect fluctuation in the value of the
Normally fully invested. Fund's portfolio securities and the Fund's
shares.*
Pilgrim America Investments, Inc.
serves as Investment Manager for
Bank and Thrift Fund.

MagnaCap Long term growth of capital with The Investment Manager generally selects
Fund income as a secondary companies that meet the Fund's disciplined
consideration. Invests in equity investment strategy : consistent dividend
securities that are determined to increases; substantial dividend substantial
be of high quality by the increases; reinvested substantial earnings;
Investment Manager based upon strong balance sheets; and attractive prices.
certain selection criteria.

Normally fully invested. Principal risk factors: exposure to financial
and market risks that accompany an investment
in equities. You can expect fluctuation in
Pilgrim America Investments, the value of the Fund's portfolio securities
Inc., serves as Investment and the Fund's shares.*
Manager for MagnaCap Fund.

MidCap Long-term capital appreciation. A 'value' manager that seeks to identify
Value Fund middle capitalization companies having one or
Invests in equity securities of more of the following characteristics: they
companies believed to be are undergoing fundamental change; are
undervalued that have a market undervalued; and are misunderstood by the
capitalization of between investment community. Investment prospects
$200million and $5 billion. are viewed on a long-term basis and not on
market timing.
Normally fully invested.
Cramer Rosenthal McGlynn, LLC., Principal risk factors: exposure to financial
provides portfolio management and market risks that accompany an investment in
services for the MidCap Value equities. You can expect fluctuation in the
Fund. value of the Fund's portfolio securities and
the Fund's shares.*

LargeCap Long-term capital appreciation. Seeks large capitalization companies believed
Value Fund to present a good value based upon price
Invests in equity securities compared to projected earnings.
issued by companies believed to
be undervalued that generally Principal risk factors: exposure to
have a market capitalization of financial and market risks that accompany an
at least $5 billion. investment in equities. You can expect
fluctuation in the value of the Fund's
Normally fully invested. portfolio securities and the Fund's shares.*

Pilgrim America Investments, Inc.
serves as Investment Manager for
LargeCap Value Fund.

Asia-Pacific Equity Long-term capital appreciation. A combination of macroeconomic overview of
Fund region, specific country analysis, setting
Invests in equity securities of target country weightings, industry analysis
companies based in the Asia-Pacific and stock selection.
region, which includes China, Hong Kong,
Indonesia, Korea, Malaysia, Philippines, Principal risk factors: exposure to financial
Singapore, Taiwan and Thailand, but and market risks that accompany an investment
does not include Japan or Australia. in equities and exposure to changes in currency
exchange rates and other risks of foreign
Normally fully invested. investment. You can expect fluctuation in the
value of the Fund's portfolio securities and
HSBC Asset Management Americas Inc. the Fund's shares.*
and HSBC Asset Management Hong Kong
Limited, subsidiaries of HSBC
Holdings plc, provides portfolio
management services for Asia-Pacific
Equity Fund.

<FN>
* This summary description should be read in conjunction with the more
complete description of the Fund's investment objectives and policies set
forth elsewhere in this Prospectus. For information regarding the purchase
and redemption of shares of the Fund, refer to the 'Shareholder Guide.' For
information regarding the risk factors of the Fund, refer to 'Investment
Practices and Risk Considerations' below.
</FN>
</TABLE>

<PAGE>
THE INCOME FUNDS AT A GLANCE*
<TABLE>
<CAPTION>
Fund Objectives and Policies Strategy
<S> <C> <C>

High Yield Fund High level of current income with capital The Investment Manager selects
appreciation as a secondary objective. high-yielding fixed income securities
Invests at least 65% of its assets in a that do not, in its opinion, involve
diversified portfolio of high-yielding undue risk relative to the securities'
debt securities commonly referred to as return characteristics.
'junk bonds.' May also invest up to 35%
of its total assets in other types of Principal risk factors: exposure to
fixed income securities, preferred and financial, market and interest rate
common stocks, warrants and other risks and greater credit risks than
securities. with higher-rated bonds. You can
normally expect greater fluctuation in
Normally fully invested. the value of the Fund's shares than for
the Government Securities Income Fund,
particularly in response to economic
Pilgrim America Investments, Inc. serves downturns.*
as Investment Manager for High Yield
Fund.

Strategic Income Fund High level of current income. Invests in The Investment Manager adjusts the
at least two of the following four weighting among these four sectors to
sectors: in investment-grade debt of U. seek an attractive balance between
S. corporations, U. S. Government potential income and potential
securities, lower-rated high yield debt volatility. The Fund may invest in
of U. S. corporations commonly referred sectors indirectly through investment
to as "junk bonds", and senior variable in open-end and closed-end investment
or floating rate loans. companies.

Normally fully invested. Principal Risk Factors: exposure to
financial, market, interest rate and
Pilgrim America Investments, Inc. serves credit risks. High yield bonds and senior
as Investment Manager for Strategic loans normally present greater credit
Income Fund. risks than investment grade bonds. Senior
loans trade on an unregulated limited secondary
market, and are less liquid than publicly traded
securities. If the Fund invests in other
investment companies and it will bear expenses
associated with those investment companies in
addition to its own expenses.*

Government Securities High level of current income consistent The Investment Manager analyzes various
Income Fund with liquidity and preservation of U.S. Government securities and selects
capital. Normally invests at least 70% of those offering the highest yield
its assets in securities issued or consistent with maintaining liquidity
guaranteed by the U.S. Government, or and preserving capital.
certain of its agencies and
instrumentalities. The Fund does not Principal risk factors: exposure to
invest in highly leveraging derivatives, financial and interest rate risks, and
such as swaps, interest-only or prepayment risk on mortgage related
principal-only stripped mortgage-backed securities. You can normally expect
securities or interest rate futures fluctuation in the value of the Fund's
contracts. shares in response to changes in
interest rates, and relatively little
Normally fully invested. fluctuation in the absence of such
changes.*
Pilgrim America Investments, Inc. serves
as Investment Manager for for Government
Securities Income Fund.
<FN>

* This summary description should be read in conjunction with the more complete
description of the Fund's investment objectives and policies set forth elsewhere
in this Prospectus. For information regarding the purchase and redemption of
shares of the Fund, refer to the 'Shareholder Guide.' For information regarding
the risk factors of the Fund, refer to 'Investment Practices and Risk
Considerations' below.
</FN>
</TABLE>

<PAGE>

SUMMARY OF EXPENSES

Shares of the Funds are available through independent financial professionals,
national and regional brokerage firms and other financial institutions
(Authorized Dealers). For each Fund, you may select from up to three separate
classes of shares: Class A, Class B and Class M.

Shareholder Transaction Expenses

<TABLE>
<S> <C> <C> <C>
Class A Class B Class M(1)

Maximum initial sales charge imposed on purchases of the Equity Funds
(as a percentage of offering price) 5.75%(2) None 3.50%(2)
Maximum initial sales charge imposed on purchases of the Income Funds
(as a percentage of offering price) 4.75%(2) None 3.25%(2)
Maximum contingent deferred sales charge (CDSC) on each fund (at the lower
of original purchase price or the redemption proceeds) None (3) 5.00%(4) None

The Funds have no redemption fees, exchange fees or sales charges on
reinvested dividends.
<FN>
(1) Bank and Thrift Fund and Strategic Income Fund do not offer Class M
shares.
(2) Reduced for purchases of $50,000 and over. See 'Class A Shares: Initial
Sales Charge Alternative' and 'Class M Shares: Lower Initial Sales Charge
Alternative.
(3) A CDSC of no more than 1.00% for shares redeemed in the first or second
year, depending on the amount of purchase, is assessed on redemptions of
Class A shares that were purchased without an initial sales charge as part
of an investment of $1 million or more. See 'Class A Shares: Initial Sales
Charge Alternative.
(4) Imposed upon redemption within 6 years from purchase. Fee has scheduled
reductions after the first year. See 'Class B Shares: Deferred Sales Charge
Alternative.'
</FN>
</TABLE>

The table below reflects the Annual Operating Expenses incurred by the Class
A, B and M shares of each Fund for the fiscal year ended June 30, 1998. The
Annual Operating Expenses for certain Funds are subject to waivers that are
described in the footnotes following the table. The "Examples" to the right of
the table show the cumulative expenses you would pay on a $1,000 investment,
assuming (i) reinvestment of all dividends and distributions, (ii) 5% annual
return and (iii) redemption at the end of the period (unless otherwise noted):

<TABLE>
<CAPTION>
Annual Operating Expenses Examples
(As a Percentage of Average Net Assets)
<S> <C> <C> <C> <C> <C> <C>
Bank and Thrift Fund Class A Class B Class A Class B Class B+
Management fees 0.__% 0.__% After 1 year
Distribution
(12b-1 fees)(1) 0.25% 1.00% After 3 years
Other Expenses 0. % 0. % After 5 years
Total fund After 10 years (2) (2)
operating expenses % %
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MagnaCap Fund Class A Class B Class M Class A Class B Class B+ Class M
Management fees 0.__% 0.__% 0.__% After 1 year
Distribution (12b-1
fees) (1) 0.30% 1.00% 0.75% After 3 years
Other Expenses 0.__% 0.__% 0.__% After 5 years
Total fund
operating expenses % % % After 10 years (2) (2)

MidCap Value Fund Class A Class B Class M Class A Class B Class B+ Class M
Management fees 1.00% 1.00% 1.00% After 1 year
Distribution (12b-1
fees) (1) 0.25% 1.00% 0.75% After 3 years
Other Expenses 0.50% 0.50% 0.50% After 5 years
Total fund
operating expenses(3) 1.75% 2.50% 2.25% After 10 years (2) (2)

LargeCap Value Fund Class A Class B Class M Class A Class B Class B+ Class M
Management fees 1.00% 1.00% 1.00% After 1 year
Distribution (12b-1
fees) (1) 0.25% 1.00% 0.75% After 3 years
Other Expenses 0.50% 0.50% 0.50% After 5 years
Total fund
operating expenses(3) 1.75% 2.50% 2.25% After 10 years (2) (2)

Asia-Pacific Equity Fund Class A Class B Class M Class A Class B Class B+ Class M
Management fees 1.25% 1.25% 1.25% After 1 year
Distribution (12b-1
fees) (1) 0.25% 1.00% 0.75% After 3 years
Other Expenses 0.50% 0.50% 0.50% After 5 years
Total fund After 10 years (2) (2)
operating expenses(3) 2.00% 2.75% 2.50%

High Yield Fund Class A Class B Class M Class A Class B Class B+ Class M

Management fees(3)(4) 0.60% 0.60% 0.60% After 1 year
Distribution (12b-1
fees) (1) 0.25% 1.00% 0.75% After 3 years
Other Expenses 0.15% 0.15% 0.15% After 5 years
Total fund After 10 years (2) (2)
operating expenses(3) 1.00% 1.75% 1.50%

Strategic Income Fund Class A Class B Class A Class B Class B+
Management fees(3)(5) 0.60% 0.60% After 1 year
Distribution (12b-1
(fees) (1)(6) 0.25% 1.00% After 3 years

Other Expenses 0.15% 0.15% After 5 years
Total fund After 10 years (2) (2)
operating expenses 1.00% 1.75%

Government Sec. Inc. Fund Class A Class B Class M Class A Class B Class B+ Class M
Management fees 0.50% 0.50% 0.50% After 1 year
Distribution (12b-1
fees) (1) 0.25% 1.00% 0.75% After 3 years
Other Expenses 0. % 0. % 0. % After 5 years
Total fund After 10 years (2) (2)
operating expenses(8) % % %

<FN>
+ Assumes no redemption at end of period.

(1) As a result of distribution (Rule 12b-1) fees, a long term
investor may pay more than the economic equivalent of the maximum
sales charge allowed by the Rules of the National Association of
Securities Dealers, Inc. (NASD).
(2) Assumes Class B shares converted to Class A shares at the end of
the eighth year following purchase.
(3) The Investment Manager has entered into expense limitation
agreements under which it will limit expenses, excluding
distribution fees, interest, taxes, brokerage and extraordinary
expenses to 1.50% for MidCap Value Fund and LargeCap Value Fund,
1.75% for Asia-Pacific Equity Fund, and 0.75% for High Yield Fund
and Strategic Income Fund. These expense limitations will apply
to each Fund individually until at least December 31, 1998,
except that the expense limitation for Strategic Income Fund will
apply until at least December 31, 1999. Prior to the waiver and
reimbursement of Fund expenses, the total annualized fund
operating expenses, excluding interest, taxes, brokerage, and
extraordinary expenses, for the fiscal year ended June 30, 1998
were __%, __% and __% of the average net assets of the Class A,
Class B, and Class M shares, respectively, of MidCap Value Fund,
__%, __% and __% of the average net assets of the Class A, Class
B and Class M shares, respectively, of LargeCap Value Fund, __%,
__%, and __% of the average net assets of the Class A, Class B,
and Class M shares, respectively, of Asia-Pacific Equity Fund,
and __%, __% and __% of the average net assets of the Class A,
Class B and Class M shares, respectively, of High Yield Fund.
(4) The management fees for High Yield Fund have been restated to
reflect current fees.
(5) The Investment Manager will waive its investment management fee
from Strategic Income Fund to the extent such fees arise from the
Fund's investment in other investment companies managed by the
Investment Manager ("Affiliated Funds")
(6) The Distributor will waive that portion of its distribution
(12b-1) fee from Strategic Income Fund in proportion to the
Fund's investment in an Affiliated Fund to reflect its allocable
share of the distribution fee paid by the Affiliated Fund.
(7) The Investment Manager has agreed to reimburse the Government
Securities Income Fund to the extent that the gross operating
costs and expenses of the Fund, excluding any interest, taxes,
brokerage commissions, amortization of organizational expenses,
extraordinary expenses, and distribution fees on Class B and
Class M shares in excess of an annual rate of 0.25% of the
average daily net assets of these classes, exceed 1.50% of the
Fund's average daily net assets on the first $40 million of net
assets and 1.00% of average daily net assets in excess of $40
million for any one fiscal year. Without such waiver, the
annualized total fund operating expenses for the fiscal year
ended June 30, 1998 would have been __% for Class A, __% for
Class B and __% for Class M.
</FN>
</TABLE>

The purpose of the above table is to assist you in understanding the various
costs and expenses that you will bear directly or indirectly as a shareholder
in a Fund. For more complete descriptions of the various costs and expenses,
please refer to 'Shareholder Guide' and 'Management of the Funds.' Use of the
assumed 5% return in the Examples is required by the Securities and Exchange
Commission. The Examples are not an illustration of past or future investment
results, and should not be considered a representation of past or future
expenses, actual expenses may be more or less than those shown.
<PAGE>

FINANCIAL HIGHLIGHTS

For a Share Outstanding Throughout Each Period

The following tables present condensed financial information about each Fund.
The tables present historical information based upon a share outstanding through
each Fund's fiscal year. This information has been derived from the financial
statements that are in each Fund's Annual Report dated as of June 30, 1998.
Further information about each Fund's performance is contained in that Fund's
Annual Report, which may be obtained without charge.

Bank and Thrift Fund

For the six-month period ended June 30, 1998 and the periods ended December 31,
1997, 1996, and 1995, the information in the table below, with the exception of
the information in the row labeled "Total Investment Return at Net Asset Value"
for periods prior to January 1, 1997, has been audited by KPMG Peat Marwick LLP,
independent auditors. For all periods ending prior to December 31, 1995, the
financial information, with the exception of the information in the row labeled
"Total Investment Return at Net Asset Value", was audited by another independent
auditor. The information in the row labeled "Total Investment Return at Net
Asset Value" has not been audited for periods prior to January 1, 1997. Prior to
October 17, 1997, the Class A shares were designated as Common Stock and the
Fund operated as a closed-end investment company.

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,

1998* 1997 1996 1995(b) 1994 1993 1992
CLASS A CLASS B CLASS A CLASS B(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value,
beginning of
period................ ______ ______ $17.84 $25.25 $14.83 $10.73 $11.87 $12.46 $10.12

Income (loss) from
investment
operations:
Net investment
income.............. ______ ______ 0.34 0.04 0.32 0.31 0.26 0.26 0.22
Net realized and
unrealized gain
(loss) on
investments......... ______ ______ 10.83 2.92 5.18 4.78 (0.53) 0.75 2.93

Total from
investment
operations............ ______ ______ 11.17 2.96 5.50 5.09 (0.27) 1.01 3.15

Less distributions:
Net investment
income.............. ______ ______ 0.31 0.04 0.32 0.31 0.22 0.26 0.22
In excess of net
investment
income.............. ______ ______ -- -- 0.03 0.03 -- -- --
Realized capital
gains............... ______ ______ 2.65 2.04 2.14 0.65 0.65 0.73 0.47
Paid-in capital....... ______ ______ 0.18 0.28 -- -- -- -- 0.12

Total
distributions......... ______ ______ 3.14 2.36 2.49 0.99 0.87 0.99 0.81

Other:
Reduction in net
asset value from
rights offering.. ______ ______ -- -- -- -- -- (0.61) --

Net asset value, end
of period............. ______ ______ $25.87 $25.85 $17.84 $14.83 $10.73 $11.87 $12.46

Closing Market
Price, end of
period................ ______ ______ -- -- $15.75 $12.88 $9.13 $10.88 $11.63

TOTAL INVESTMENT
RETURN AT MARKET
VALUE(c).............. ______ ______ -- -- 43.48% 52.81% (8.85)% 1.95%(d) 31.53%
TOTAL INVESTMENT
RETURN AT NET ASSET
VALUE(e).............. ______ ______ 64.86% 11.88% 41.10% 49.69% (1.89)% 7.79%(f) 32.36(g)%

RATIOS/SUPPLEMENTAL
DATA
Net assets, end of
period
$(millions)........... ______ ______ $383 $76 $252 $210 $152 $168 $141
Ratios to average
net assets
Expenses.............. ______ ______ 1.10% 1.85%(h) 1.01% 1.05% 1.28% 0.91% 1.24%
Net investment
income.............. ______ ______ 1.39% 0.99%(h) 1.94% 2.37% 2.13% 2.08% 2.00%
Portfolio turnover
rate.................. ______ ______ 22% 22% 21% 13% 14% 17% 20%
Average commission
rate paid............. ______ ______ $0.013 $0.013 -- -- -- -- --

<FN>

(a) From the period October 20, 1997 (initial offering of Class B shares)
through December 31, 1997.

(b) Pilgrim America Investments, Inc., the Fund's Investment Manager, acquired
certain assets of Pilgrim Management Corporation, the Fund's former investment
manager, in a transaction that closed on April 7, 1995.

(c) Total return is calculated at market value without deduction of sales
commissions and assuming reinvestment of all dividends and distributions during
the period.

(d) Calculation of total return excludes the effect of the per share dilution
resulting from the 1993 Rights Offering as the total account value of a fully
subscribed shareholder was minimally impacted.

(e) Total return is calculated at net asset value without deduction of sales
commissions and assumes reinvestment of all dividends and distributions during
the period. Total investment returns based on net asset value, which can be
higher or lower than market value, may result in substantially different returns
than total returns based on market value. Total returns for less than one year
are not annualized. For all periods prior to January 1, 1997 the total returns
presented are unaudited.

(f) Total return is calculated assuming full participation in the 1993 rights
offering.

(g) Total return is calculated assuming no participation in the 1992 rights
offering.

(h) Annualized.

* Effective June 30, 1998, Bank and Thrift Fund changed its year end to June 30.
</FN>
</TABLE>
<PAGE>

YEAR ENDED DECEMBER 31,

1991 1990 1989

PER SHARE OPERATING
PERFORMANCE
Net asset value,
beginning of
period................ $7.49 $10.26 $9.54

Income (loss) from
investment
operations:
Net investment
income.............. 0.24 0.31 0.30

Net realized and
unrealized gain
(loss) on
investments......... 3.33 (2.20) 1.50

Total from
investment
operations............ 3.57 (1.89) 1.80

Less distributions:
Net investment
income.............. 0.24 0.31 0.31
In excess of net
investment
income.............. -- -- --
Realized capital
gains............... -- -- 0.44
Paid-in capital....... 0.70 0.57 0.33

Total
distributions......... 0.94 0.88 1.08

Other:
Reduction in net
asset value from
rights offering.. -- -- --
-- -- --
Net asset value, end
of period............. $10.12 $7.49 $10.26

Closing Market
Price, end of
period................ $9.50 $7.13 $9.13
TOTAL INVESTMENT
RETURN AT MARKET
VALUE(c).............. 47.52% (12.45)% 32.25%
TOTAL INVESTMENT
RETURN AT NET ASSET
VALUE(e).............. 49.49% (18.14)% 20.79%
RATIOS/SUPPLEMENTAL
DATA
Net assets, end of
period $101 $75 $103
Ratios to average
net assets
Expenses.............. 1.31% 1.29% 1.26%
Net investment
income.............. 2.68% 3.59% 4.15%
Portfolio turnover
rate.................. 31% 46% 63%
Average commission
rate paid............. -- -- --

<PAGE>

MagnaCap Fund

For the fiscal year ended June 30, 1998 and the periods ended June 30, 1997,
1996 and 1995, the information in the table below has been audited by KPMG Peat
Marwick LLP, independent auditors. For all periods ending prior to July 1, 1994,
the financial information was audited by another independent auditor.

<TABLE>
<CAPTION>
Class A
Year Ended June 30,

1998 1997 1996 1995(b) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>

Per Share Operating Performance
Net asset value, beginning of
period .......................... _____ $16.69 $14.03 $12.36 $12.05 $11.98 $10.93 $10.74 $10.52

Income from investment operations:
Net investment income ........... _____ 0.10 0.09 0.12 0.15 0.14 0.13 0.20 0.15
Net realized and unrealized gain
(loss) on investments ......... _____ 4.16 2.87 2.29 0.89 0.82 1.16 0.33 1.24

Total from investment
operations .................. _____ 4.26 2.96 2.41 1.04 0.96 1.29 0.53 1.39

Less distributions from:
Net investment income ........... _____ 0.10 0.06 0.14 0.14 0.12 0.24 0.16 0.17
Distributions in excess of net
investment income ............. _____ 0.02 -- -- -- -- -- -- --
Realized gains on investments ... _____ 4.16 0.24 0.60 0.59 0.77 -- 0.18 1.00
Distributions in excess of net
realized gains ................ _____ 0.75 -- -- -- -- -- -- --

Total distributions ........... _____ 5.03 0.30 0.74 0.73 0.89 0.24 0.34 1.17

Net asset value, end of period ... _____ $15.92 $ 16.69 $ 14.03 $ 12.36 $ 12.05 $ 11.98 $ 10.93 $ 10.74

Total Return(c) .................. _____ 30.82% 21.31% 20.61% 9.13% 8.21% 11.93% 5.21% 13.84%
</TABLE>

<TABLE>
Ratios/Supplemental Data
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net assets, end of period (in
thousands) __________ $290,355 $235,393 $211,330 $190,435 $197,250 $196,861 $199,892 $224,059
Ratios to average net assets:
Expenses _____ 1.46% 1.68% 1.59% 1.53% 1.53% 1.60% 1.50% 1.50%
Net investment income. _____ 0.64% 0.54% 0.98% 1.16% 1.09% 1.20% 2.00% 1.40%
Portfolio turnover rate _____ 77% 15% 6% 7%36% 49% 182% 12% --
Average commission rate paid. _____ $0.0 686 -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
Class A Class B Class M

Year Year Year July 17, Year Year July 17,
Ended Ended Ended 1995(a) to Ended Ended 1995(a) to
June 30, June 30, June 30, June 30, June 30, June 30, June 30,
1989 1998 1997 1996 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C>

Per Share Operating Performance
Net asset value, beginning of
period........................... $9.12 _____ $16.59 $14.22 _____ $16.63 $14.22

Income from investment operations:
Net investment income............ 0.17 _____ -- 0.06 _____ 0.02 0.08
Net realized and unrealized gain
(loss) on investments.......... 1.39 _____ 4.13 2.61 _____ 4.16 2.63

Total from investment
operations................... 1.56 _____ 4.13 2.67 _____ 4.18 2.71

Less distributions from:
Net investment income............ 0.16 _____ -- 0.06 _____ 0.02 0.06
Distributions in excess of net
investment income.............. -- _____ -- -- _____ 0.01 --
Realized gains on investments.... -- _____ 4.13 0.24 _____ 4.16 0.24
Distributions in excess of net
realized gains................. -- _____ 0.78 -- _____ 0.75 --

Total distributions............ 0.16 _____ 4.91 0.30 _____ 4.94 0.30

Net asset value, end of period.... $10.52 _____ $15.81 $16.59 _____ $15.87 $16.63

Total Return(c)................... 17.32% _____ 29.92% 18.98% _____ 30.26% 19.26%

Ratios/Supplemental Data

Net assets, end of period (in
thousands)....................... $204,552 _____ $37,427 $10,509 _____ $6,748 $1,961
Ratios to average net assets:
Expenses......................... 1.60% _____ 2.16% 2.38%(d) _____ 1.91% 2.13%(d)
Net investment income............ 1.80% _____ (0.04%) 0.07%(d) _____ 0.22% 0.32%(d)
Portfolio turnover rate........... 129% _____ 77% 15% _____ 77% 15%
Average commission rate paid...... -- _____ $0.0686 -- _____ $0.0686 --

<FN>
(a) Commencement of offering of shares.

(b) Pilgrim America Investments, Inc., the Fund's Investment Manager, acquired
certain assets of Pilgrim Management Corporation, the Fund's former Investment
Manager, in a transaction that closed on April 7, 1995.

(c) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction of
sales charges. Total return information for less than one year is not
annualized.

(d) Annualized.
</FN>
</TABLE>
<PAGE>

Pilgrim America MidCap Value Fund

The information in the table below has been audited by KPMG Peat Marwick LLP,
independent auditors.

<TABLE>
<CAPTION>
Class A Class B Class M

Ten Ten Ten
Months Months Months
Year Year Ended Year Year Ended Year Year Ended
Ended Ended June Ended Ended June Ended Ended June
June 30, June 30, 30, June 30, June 30, 30, June 30, June 30, 30,
1998 1997 1996(a) 1998 1997 1996(a) 1998 1997 1996(a)

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period... _____ $11.99 $10.00 ____ $11.94 $10.00 _____ $11.93 $10.00
Income from investment operations:
Net investment income (loss)......... _____ (0.02) 0.13 ____ (0.05) 0.07 _____ (0.03) 0.06
Net realized and unrealized gains on
investments........................ _____ 2.85 1.91 ____ 2.76 1.90 _____ 2.76 1.91

Total from investment operations.... _____ 2.83 2.04 ____ 2.71 1.97 _____ 2.73 1.97

Less distributions:
Net investment income................. _____ -- 0.05 ____ -- 0.03 _____ -- 0.04
In excess of net investment income.... _____ 0.07 -- ____ 0.05 -- _____ 0.06 --
Realized gains on investments......... _____ 0.11 -- ____ 0.11 -- _____ 0.11 --

Total distributions................. _____ 0.18 0.05 ____ 0.16 0.03 _____ 0.17 0.04

Net asset value, end of period.......... _____ $14.64 $11.99 ____ $14.49 $11.94 _____ $14.49 $11.93

Total Return(b)......................... _____ 23.89% 20.48% ____ 22.95% 19.80% _____ 23.21% 19.82%
Ratios/Supplemental Data
Net assets, end of period (000's). _____ $16,985 $2,389 ____ $23,258 $2,123 _____ $8,378 $1,731
Ratios to average net assets:
Expenses(c)(d)(e)..................... _____ 1.75% 1.75%(f) ____ 2.50% 2.50%(f) _____ 2.25% 2.25%(f)
Net investment income (loss)(c)(d)(e). _____ (0.13)% 2.00%(f) ____ (0.90)% 1.27%(f) _____ (0.63)% 1.16%(f)
Portfolio turnover rate................. _____ 86% 60%(f) ____ 86% 60%(f) _____ 86% 60%(f)
Average commission rate paid............ _____ $0.0592 -- ____ $0.0592 -- _____ $0.0592 --

<FN>
(a) The Fund commenced operations on September 1, 1995.

(b) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction of
sales charges. Total return information for less than one year is not
annualized.

(c) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1997, the ratios of expenses to average net assets were 1.94%, 2.69% and
2.44% and the ratios of net investment income (loss) to average net assets were
(0.32)%, (1.11)% and (0.81)% for Class A, B and M shares, respectively.

(d) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1996, the annualized ratios of expenses to average net assets were 4.91%,
5.32% and 4.72% and the annualized ratios of net investment income (loss) to
average net assets were (1.17)%, (1.56)% and (1.32)% for Class A, B and M
shares, respectively.

(e) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1998, the ratios of expenses to average net assets were _____, _______ and
_____ and the ratios of net investment income (loss) to average net assets were
_____, ______ and _____ for Class A, B and M shares, respectfully.

(f) Annualized.
</FN>
</TABLE>
<PAGE>

Pilgrim America LargeCap Value Fund(a)

The information in the table below has been audited by KPMG Peat Marwick LLP,
independent auditors.

<TABLE>
<CAPTION>
Class A Class B Class M

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period... _____ $11.77 $10.00 ____ $11.71 $10.00 _____ $11.73 $10.00
Income from investment operations:
Net investment income (loss)......... _____ 0.06 0.07 ____ (0.02) 0.06 _____ -- 0.06
Net realized and unrealized gains on
investments........................ _____ 2.63 1.87 ____ 2.59 1.81 _____ 2.62 1.83

Total from investment operations.... _____ 2.69 1.94 ____ 2.57 1.87 _____ 2.62 1.89

Less distributions:
Net investment income................. _____ -- 0.07 ____ -- 0.06 _____ -- 0.06
In excess of net investment income.... _____ 0.05 0.01 ____ -- 0.01 _____ 0.01 0.01
Realized gains on investments......... _____ 0.24 0.09 ____ 0.24 0.09 _____ 0.24 0.09

Total distributions................. _____ 0.29 0.17 ____ 0.24 0.16 _____ 0.25 0.16

Net asset value, end of period.......... _____ $14.17 $11.77 ____ $14.04 $11.71 _____ $14.10 $11.73

Total Return(c)......................... _____ 23.24% 19.56% ____ 22.23% 18.85% _____ 22.58% 19.06%
Ratios/Supplemental Data
Net assets, end of period (000's). _____ $8,961 $2,530 ____ $13,611 $1,424 _____ $4,719 $1,240
Ratios to average net assets:
Expenses(d)(e)(f)..................... _____ 1.75% 1.75%(g) ____ 2.50% 2.50%(g) _____ 2.25% 2.25%(g)
Net investment income (loss)(d)(e)(f). _____ 0.41% 0.65%(g) ____ (0.35)% (0.25)%(g) _____ (0.10)% 0.06%(g)
Portfolio turnover rate................. _____ 86% 59%(g) ____ 86% 59%(g) _____ 86% 59%(g)
Average commission rate paid............ _____ $0.0586 -- ____ $0.0586 -- _____ $0.0586 --

<FN>
(a) Since November 1, 1997, the Investment Manager has provided investment
advisory services directly to the Fund. Prior to that date, a different firm
served as Portfolio Manager to the Fund.

(b) The Fund commenced operations on September 1, 1995.

(d) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1997, the ratios of expenses to average net assets were 2.33%, 3.08% and
2.83% and the ratios of net investment income (loss) to average net assets were
(0.18)%, (0.91)% and (0.68)% for Class A, B and M shares, respectively.

(e) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1996, the annualized ratios of expenses to average net assets were 5.44%,
5.79% and 5.90% and the annualized ratios of net investment income (loss) to
average net assets were (3.04)%, (3.53)% and (3.59)% for Class A, B and M
shares, respectively.

(f) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1998, the ratios of expenses to average net assets were _____, _______ and
_____ and the ratios of net investment income (loss) to average net assets were
_____, ______ and _____ for Class A, B and M shares, respectfully.

(g) Annualized.
</FN>
</TABLE>
<PAGE>

Pilgrim America Asia-Pacific Equity Fund

The information in the table below has been audited by KPMG Peat Marwick LLP,
independent auditors.

Class A Class B Class M

Ten Ten Ten
Months Year Months Year Months
Year Year Ended Ended Year Ended Ended Year Ended
Ended Ended June June Ended June June Ended June
June 30, June 30, 30, 30, June 30, 30, 30, June 30, 30,
1998 1997 1996(a) 1998 1997 1996(a) 1998 1997 1996(a)

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period... _____ $10.35 $10.00 ____ $10.31 $10.00 _____ $10.32 $10.00
Income from investment operations:
Net investment income (loss)......... _____ 0.02 0.03 ____ (0.07) (0.01) _____ (0.05) --
Net realized and unrealized gains on
investments and foreign
currency transactions.............. _____ 0.58 0.34 ____ 0.59 0.32 _____ 0.59 0.33

Total from investment operations.... _____ 0.60 0.37 ____ 0.52 0.31 _____ 0.54 0.33

Less distributions:
Net investment income................. _____ -- -- ____ -- -- _____ -- --
In excess of net investment income.... _____ -- 0.02 ____ -- -- _____ -- 0.01
Realized gains on investments......... _____ -- -- ____ -- -- _____ -- --
Tax return of capital ................ _____ 0.02 -- ____ -- -- _____ -- --

Total distributions................. _____ 0.02 0.02 ____ -- -- _____ -- 0.01

Net asset value, end of period.......... _____ $10.93 $10.35 ____ $10.83 $10.31 _____ $10.86 $10.32

Total Return(b)......................... _____ 5.78% 3.76% ____ 5.04% 3.19% _____ 5.26% 3.32%
Ratios/Supplemental Data
Net assets, end of period (000's). _____ $32,485 $18,371 ____ $30,169 $17,789 _____ $11,155 $6,476
Ratios to average net assets:
Expenses(c)(d)(e)..................... _____ 2.00% 2.00%(f) ____ 2.75% 2.75%(f) _____ 2.50% 2.50%(f)
Net investment income (loss)(c)(d)(e). _____ 0.00% 0.33%(f) ____ (0.79)% (0.38)%(f) _____ (0.55)% (0.16)%(f)
Portfolio turnover rate................. _____ 38% 15%(f) ____ 38% 15%(f) _____ 38% 15%(f)
Average commission rate paid............ _____ $0.0096 -- ____ $0.0096 -- _____ $0.0096 --

<FN>
(a) The Fund commenced operations on September 1, 1995.

(c) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1997, the ratios of expenses to average net assets were 2.54%, 3.29% and
3.04% and the ratios of net investment income (loss) to average net assets were
(0.53)%, (1.33)% and (1.09)% for Class A, B and M shares, respectively.

(d) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1996, the annualized ratios of expenses to average net assets were 3.47%,
4.10% and 3.88% and the annualized ratios of net investment income (loss) to
average net assets were (1.14)%, (1.73)% and (1.53)% for Class A, B and M
shares, respectively.

(f) Annualized.
</FN>
</TABLE>

<PAGE>

High Yield Fund

For the fiscal year ended June 30, 1998 and the periods ended June 30, 1997,
1996 and the eight-month period ended June 30, 1995, the information in the
table below has been audited by KPMG Peat Marwick LLP, independent auditors. For
all periods ending prior to November 1, 1994, the financial information was
audited by another independent auditor. Information for High Yield Fund for the
fiscal years ended October 31, 1986 through October 31, 1989 was not included in
such Fund's 1994 financial statements.
<TABLE>
<CAPTION>

Class A

Eight Months
Year Ended June 30, Ended Year Ended October 31,
June 30,
1998 1997 1996 1995(b)(c) 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C>

Per Share Operating Performance
Net asset value, beginning of
period........................... ____ $6.36 $6.15 $5.95 $6.47 $5.77 $5.70

Income (loss) from investment
operations:
Net investment income............ ____ 0.61 0.59 0.35 0.54 0.53 0.63
Net realized and unrealized gain
(loss) on investments.......... ____ 0.43 0.16 0.21 (0.51) 0.70 0.07

Total from investment
operations................... ____ 1.04 0.75 0.56 0.03 1.23 0.70

Less distributions from:
Net investment income............ ____ 0.60 0.54 0.36 0.55 0.53 0.63
Realized gains on investments.... ____ -- -- -- -- -- --
-- -- -- -- -- --

Total distributions............ ____ 0.60 0.54 0.36 0.55 0.53 0.63

Net asset value, end of period.... ____ $6.80 $6.36 $6.15 $5.95 $6.47 $5.77

Total Return(d)................... ____ 17.14% 12.72% 9.77% 0.47% 22.12% 12.65%

Ratios/Supplemental Data

Net assets, end of period
(`000's)......................... ____ $35,940 $18,691 $15,950 $16,046 $18,797 $17,034
Ratios to average net assets:
Expenses......................... ____ 1.00%(e) 1.00%(f) 2.25%(g)(h) 2.00%(h) 2.02% 2.03%
Net investment income............ ____ 9.54%(e) 9.46%(f) 8.84%(g)(h) 8.73%(h) 8.36% 10.93%
Portfolio turnover rate........... ____ 394% 339% 166% 192% 116% 193%
</TABLE>
<TABLE>
<CAPTION>
Class A Class B Class M

Year Year July 17, Year Year July 17,
Year Ended Ended Ended 1995(a) to Ended Ended 1995(a) to
October 31, June 30, June 30, June 30, June 30, June 30, June 30,
1991 1990 1989 1998 1997 1996 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value, beginning of
period........................... $5.03 $6.46 $7.29 _____ $6.36 $6.20 _____ $6.36 $6.20

Income (loss) from investment
operations:
Net investment income............ 0.66 0.82 0.88 _____ 0.57 0.48 _____ 0.58 0.50
Net realized and unrealized gain
(loss) on investments.......... 0.74 (1.40) (0.80) _____ 0.41 0.14 _____ 0.41 0.14

Total from investment
operations................... 1.40 (0.58) 0.08 _____ 0.98 0.62 _____ 0.99 0.64

Less distributions from:
Net investment income............ 0.68 0.85 0.91 _____ 0.56 0.46 _____ 0.57 0.48
Realized gains on investments.... 0.05 -- -- _____ -- -- _____ -- --

Total distributions............ 0.73 0.85 0.91 _____ 0.56 0.46 _____ 0.57 0.48

Net asset value, end of period.... $5.70 $5.03 $6.46 _____ $6.78 $6.36 _____ $6.78 $6.36

Total Return(d)................... 30.00% (10.08)% 0.94% _____ 16.04% 10.37% _____ 16.29% 10.69%

Ratios/Supplemental Data

Net assets, end of period
(in thousands)................... $23,820 $21,598 $31,356 _____ $40,225 $2,374 _____ $8,848 $1,243
Ratios to average net assets:
Expenses......................... 1.89% 1.75% 1.79% _____ 1.75%(e) 1.75%(f)(g) _____ 1.50%(e) 1.50%(f)(g)
Net investment income............ 12.40% 14.11% 12.61% _____ 8.64%(e) 9.02%(f)(g) _____ 8.93%(e) 9.41%(f)(g)
Portfolio turnover rate........... 173% 183% 210% _____ 394% 339% _____ 394% 339%

<FN>
(a) Commencement of offering of shares.

(d) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction of
sales charges. Total return information for less than one year is not
annualized.

(e) Prior to the waiver and reimbursement of expenses for the year ended June
30, 1997, the ratios of expenses to average net assets were 1.42%, 2.17% and
1.92% and the ratios of net investment income to average net assets were 9.09%,
8.18% and 8.47% for Class A, B and M shares, respectively.

(f) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1996, the ratios of expenses to average net assets were 2.19%, 2.94%
(annualized) and 2.69% (annualized) for Class A, B and M shares, respectively.
Prior to the waiver and reimbursement of expenses for the period ended June 30,
1996, the ratios of net investment income to average net assets were 8.27%,
8.05% (annualized) and 8.51% (annualized) for Class A, B and M shares,
respectively.

(g) Annualized.

(h) Prior to the waiver of expenses, the annualized ratio of expenses to average
net assets was 2.35% in 1995 and 2.07% in 1994 for Class A shares. Prior to the
waiver of expenses, the annualized ratio of net investment income to average net
assets was 8.74% in 1995 and 8.66% in 1994 for Class A shares.
</FN>
</TABLE>

<PAGE>

Government Securities Income Fund*

<TABLE>
<CAPTION>
Class A

Year Ended June 30,

1998 1997 1996 1995(b) 1994 1993(c) 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value, beginning of
period...................... ____ $12.59 $12.97 $12.73 $13.96 $13.76 $13.76 $13.79 $14.23 $14.23

Income (loss) from investment
operations:
Net investment income....... ____ 0.69 0.75 0.84 0.84 1.13 1.19 1.25 1.25 1.31
Net realized and unrealized
gain (loss) on
investments............... ____ 0.20 (0.32) 0.24 (1.17) 0.18 -- (0.03) (0.38) 0.02

Total from investment
operations.............. ____ 0.89 0.43 1.08 (0.33) 1.31 1.19 1.22 0.87 1.33

Less distributions from:
Net investment income....... ____ 0.69 0.75 0.84 0.90 1.11 1.19 1.25 1.31 1.33
Distributions in excess of
net investment income..... ____ 0.04 -- -- -- -- -- -- -- --
Tax return of capital....... ____ 0.04 0.06 -- -- -- -- -- -- --

Total distributions....... ____ 0.77 0.81 0.84 0.90 1.11 1.19 1.25 1.31 1.33

Net asset value, end of
period...................... ____ $12.71 $12.59 $12.97 $12.73 $13.96 $13.76 $13.76 $13.79 $14.23

Total Return(d)............... ____ 7.33% 3.34% 8.96% (2.50)% 9.82% 8.98% 9.27% 6.51% 10.10%

Ratios/Supplemental Data

Net assets, end of period
(`000's).................. ____ $29,900 $38,753 $43,631 $61,100 $87,301 $96,390 $110,674 $122,212 $144,769
Ratios to average net assets:
Expenses.................... ____ 1.42% 1.51%(e) 1.40%(g) 1.21% 1.12% 1.10% 1.14% 1.14% 1.06%
Net investment income....... ____ 5.78% 5.64%(e) 6.37%(g) 6.44% 8.06% 8.59% 9.09% 9.02% 9.45%
Portfolio turnover rate....... ____ 172% 170% 299% 402% 466% 823% 429% 448% 537%
</TABLE>

<TABLE>
<CAPTION>
Class B Class M

Year Year July 17, Year Year July 17,
Ended Ended 1995(a) to Ended Ended 1995(a) to
June 30, June 30, June 30, June 30, June 30, June 30,
1998 1997 1996 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value, beginning of
period...................... ____ $12.59 $12.95 ____ $12.59 $12.95

Income (loss) from investment
operations:
Net investment income....... ____ 0.67 0.66 ____ 0.70 0.68
Net realized and unrealized
gain (loss) on
investments............... ____ 0.11 (0.37) ____ 0.14 (0.36)

Total from investment
operations.............. ____ 0.78 0.29 ____ 0.84 0.32

Less distributions from:
Net investment income....... ____ 0.67 0.65 ____ 0.70 0.68
Distributions in excess of
net investment income..... ____ 0.02 -- ____ -- --
Tax return of capital....... ____ -- -- ____ 0.01 --
-- -- ---- --

Total distributions....... ____ 0.69 0.65 ____ 0.71 0.68

Net asset value, end of
period...................... ____ $12.68 $12.59 ____ $12.72 $12.59

Total Return(d)............... ____ 6.38% 2.25% ____ 6.88% 2.52%

Ratios/Supplemental Data

Net assets, end of period
(`000's).................. ____ $1,534 $73 ____ $61 $24
Ratios to average net assets:
Expenses.................... ____ 2.17% 2.26%(e)(f) ____ 1.92% 2.01%(e)(f)
Net investment income....... ____ 4.92% 4.98%(e)(f) ____ 5.25% 5.73%(e)(f)
Portfolio turnover rate....... ____ 172% 170% ____ 172% 170%

<FN>
(a) Commencement of offering of shares.

(c) During this period, average daily borrowings were $11,038,044, average
monthly shares outstanding were 6,429,755 and average daily borrowings per share
were $1.72. The Fund earned income and realized capital gains as a result of
entering into reverse repurchase agreements during the six months from July to
December 1992. Such transactions constituted borrowing transactions and, as a
result, the Fund exceeded its 10% borrowing limitations during that period.
Therefore, the Fund's performance was higher than it would have been had the
Fund adhered to its investment restrictions. This borrowing technique was
discontinued subsequent to December 1992 until April 4, 1995, when shareholders
approved a change in the Fund's investment policies.

(e) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1996, the annualized ratio of expenses to average net assets was 1.57%,
2.41% and 2.16% for Class A, B and M shares, respectively. Prior to the waiver
and reimbursement of expenses for the period ended June 30, 1996, the annualized
ratio of net investment income to average net assets was 5.74%, 4.83% and 5.58%
for Class A, B and M shares, respectively.

(f) Annualized.

(g) Prior to the waiver of expenses the ratio of expenses to average net assets
was 1.54% and the ratio of net investment income to average net assets was 6.23%
for Class A shares.

* Prior to April 4, 1995, the Fund had an investment policy of normally
investing at least 70% of its assets in Government National Mortgage Association
(GNMA) certificates. Effective April 4, 1995, the Fund's policy changed to
normally investing at least 70% of its assets in securities issued or guaranteed
by the U.S. Government, or certain of its agencies and instrumentalities.
</FN>
</TABLE>
<PAGE>

THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES

Bank and Thrift Fund. The Fund primarily seeks long-term capital appreciation; a
secondary objective is income. The Fund pursues its objectives by investing,
under normal market conditions, at least 65% of its total assets in equity
securities of (i) national and state-chartered banks (other than money center
banks), (ii) thrifts, (iii) the holding or parent companies of such depository
institutions, and (iv) in savings accounts of mutual thrifts, which investment
may entitle the investor to participate in future stock conversions of the
mutual thrifts. These portfolio securities are selected principally on the basis
of fundamental investment value and potential for future growth, including
securities of institutions that the Fund believes are well positioned to take
advantage of the attractive investment opportunities developing in the banking
and thrift industries. In making decisions concerning the selection of portfolio
securities for the Fund, the Investment Manager conducts its own evaluation of
the depository institution which is a potential investment by the Fund and does
not take into account the credit rating of the debt securities issued by such
institution. These equity securities include common stocks and securities
convertible into common stock (including convertible bonds, convertible
preferred stock, and warrants) but do not include non-convertible preferred
stocks or adjustable rate preferred stocks. An investment in the Fund's shares
cannot be considered a complete investment program. Because the Fund's
investment portfolio will be concentrated in specific segments of the banking
and thrift industries, the shares may be subject to greater risk than the shares
of a fund whose portfolio is less concentrated.

The Investment Manager believes that a number of factors may contribute to the
potential for growth in the value of equity securities of depository
institutions, including the fact that such depository institutions are:

(i) located in geographic regions experiencing strong economic growth
and able to participate in such growth;

(ii) well-managed and currently providing above-average returns on
assets and shareholders' equity;

(iii) attractive candidates for acquisition by a money center bank or
another regional bank, as defined in 'The Banking and Thrift
Industries,' below, or attractive partners for business combinations,
as a result of opportunities created by the trend towards deregulation
and interstate banking or in order to create larger, more efficient
banking combinations;

(iv) expanding their business into new financial services or
geographic areas that have become or may become permissible due to an
easing of regulatory constraints; or

(v) investing assets in technology that is intended to increase
productivity.

The Investment Manager also believes that factors may contribute to increased
earnings of securities of depository institutions, including the following:

(i) changes in the sources of revenues of banks, such as the
implementation of certain new transaction-based fees;

(ii) a focus on variable rate pricing of bank products, which is less
sensitive than fixed pricing to cyclical interest rate changes;

(iii) the ability, as a result of liberalization of regulation, to
offer financial products and services which may have a higher rate of
return than traditional banking and financial services products;

(iv) the recent implementation of share repurchase programs by certain
banks; or

(v) a trend towards increased savings and investing as the average age
of the population of the United States gets older.

The Fund's policy of investing under normal market conditions at least 65% of
its total assets in the equity securities of (i) national and state-chartered
banks (other than money center banks), (ii) thrifts, (iii) the holding or parent
companies of such depository institutions, and (iv) in savings accounts of
mutual thrifts is fundamental and may only be changed with approval of the
shareholders of the Fund.

The Fund invests the remaining 35% of its total assets in the equity securities,
including preferred stocks or adjustable rate preferred stocks, of money center
banks, other financial services companies, other issuers deemed suitable by the
Investment Manager (which may include companies that are not in financial
services industries), in securities of other investment companies and in
nonconvertible debt securities (including certificates of deposit, commercial
paper, notes, bonds or debentures) that are either issued or guaranteed by the
United States Government or agency thereof or issued by a corporation or other
issuer and rated investment grade or comparable quality by at least one
nationally recognized rating organization. The Fund may also invest in
short-term, investment grade debt securities, as described in 'Investment
Techniques--Temporary Defensive and Other Short-Term Positions.'

MagnaCap Fund. The Fund's objective is growth of capital, with dividend income
as a secondary consideration. In selecting investments for the Fund,
preservation of capital is also an important consideration. The Fund normally
seeks its objectives by investing primarily in equity securities issued by
companies that the Investment Manager determines are of high quality based upon
the selection criteria described below. The equity securities in which the Fund
may invest include common stocks, securities convertible into common stocks,
rights or warrants to subscribe for or purchase common stocks, repurchase
agreements, and foreign securities (including American Depository Receipts
(ADRs)), although it is anticipated that the Fund normally will be invested as
fully as practicable in equity securities in accordance with its investment
policies. Assets of the Fund not invested in equity securities may be invested
in high quality debt securities, as described in "Investment
Techniques--Temporary Defensive and other Short-Term Positions." In a period
that the Investment Manager believes presents weakness in the stock market or in
economic conditions, the Fund may establish a defensive position to attempt to
preserve capital and increase its investment in these instruments.

MagnaCap Fund is managed in accordance with the philosophy that companies that
can best meet the Fund's objectives have paid increasing dividends or have had
the capability to pay rising dividends from their operations. Normally, stocks
are acquired only if at least 65% of the Fund's assets are invested in companies
that meet the following criteria:

1. Consistent dividends. A company must have paid or had the
financial capability from its operations to pay a dividend in 8
out of the last 10 years.

2. Substantial dividend increases. A company must have increased its
dividend or had the financial capability from its operations to
have increased its dividend at least 100% over the past 10 years.

3. Reinvested earnings. Dividend payout must be less than 65% of
current earnings.

4. Strong balance sheet. Long term debt should be no more than 25%
of the company's total capitalization or a company's bonds must
be rated at least A- or A-3.

5. Attractive price. A company's current share price should be in
the lower half of the stock's price/earnings ratio range for the
past ten years, or the ratio of the share price to its
anticipated future earnings must be an attractive value in
relation to the average for its industry peer group or that of
the Standard & Poor's 500 Composite Stock Price Index.

The Investment Manager may also consider other factors in selecting investments
for the Fund. The remainder of the Fund's assets may be invested in equity
securities that the Investment Manager believes have growth potential because
they represent an attractive value. MagnaCap Fund may not invest more than 5% of
its total assets in the securities of companies which, including predecessors,
have not had a record of at least three years of continuous operations, and it
may not invest in any restricted securities.

MidCap Value Fund. This Fund's investment objective is long-term capital
appreciation. The Fund seeks to achieve this objective through investment in
equity securities issued by companies with middle market capitalizations, i.e.,
market capitalizations between $200 million and $5 billion, although the Fund
may also invest to a limited degree in companies that have larger or smaller
market capitalizations. The equity securities in which the Fund may invest
include common stock, convertible securities, preferred stock and warrants. The
Fund will normally be invested as fully as practicable (at least 80%) in equity
securities of companies with middle market capitalizations. The Fund may also
invest in high-quality debt securities, as described in 'Investment
Techniques--Temporary Defensive and Other Short-Term Positions.'

The Fund is managed in accordance with the disciplined investment style that the
Portfolio Manager, Cramer Rosenthal McGlynn, LLC (CRM), employs in managing
midcap value portfolios. As a value adviser, CRM does not attempt to time market
fluctuations; rather it relies on stock selection to achieve investment results,
seeking out those stocks that are undervalued and, in some cases, neglected by
financial analysts. The Portfolio Manager's investment philosophy is to take
advantage of periodic inefficiencies that develop in the valuation of publicly
traded companies. Generally, its approach to finding such companies is to first
identify dynamic change that can be material to a company's operations. Dynamic
change means change within a company that is likely to have a material impact on
its operations. Examples include new senior management, new products or markets,
or any material divestitures, acquisitions, or mergers. The philosophy is that
this type of change often creates misunderstanding in the marketplace that can
result in a company's stock being undervalued relative to its future prospects
and peer group. The Portfolio Manager seeks to identify this change at an early
stage and conduct an evaluation of the company's business. In applying this
approach, the Portfolio Manager focuses on middle capitalization companies where
dynamic change can be material.

CRM seeks companies that it believes will look different in the future in terms
of their operations, finances, and/or management. Once change is identified, the
Portfolio Manager conducts an evaluation of a company that includes creating a
financial model based principally upon projected cash flow, as opposed to
reported earnings. The company's stock is evaluated in the context of what the
market is willing to pay for the shares of comparable companies and what a
strategic buyer would pay for the whole company. CRM also evaluates the degree
of investor recognition of a company by monitoring the number of sell side
analysts who closely follow the company and the nature of the shareholder base.
Before deciding to purchase a stock CRM conducts a business analysis to
corroborate its observations and assumptions, including, in most instances,
discussions with management, customers and suppliers. Also, an important
consideration is the extent to which management holds an ownership interest in a
company. In its overall assessment, CRM seeks stocks that have a favorable
risk/reward ratio over an 18 to 24 month holding period.

LargeCap Value Fund. This Fund's investment objective is long-term capital
appreciation. The Fund seeks to achieve this objective through investing at
least 80% of its assets in equity securities and at least 65% of its assets in
equity securities issued by companies with large market capitalizations that the
Portfolio Manager believes sell at reasonable prices relative to their projected
earnings. The Portfolio Manager's investment goal is to participate in up
markets while cushioning the portfolio during a downturn. A company with a
market capitalization (outstanding shares multiplied by price per share) of over
$5 billion is considered to have large market capitalization, although the Fund
may also invest to a limited degree in companies that have a market
capitalization between $1 billion and $5 billion. The equity securities in which
the Fund may invest include common stock, convertible securities, preferred
stock, ADRs, and warrants. The Fund will normally be invested as fully as
practicable (at least 80%) in equity securities and will normally invest at
least 65% of its assets in companies with large market capitalizations. The Fund
may also invest in high-quality debt securities, as described in 'Investment
Techniques--Temporary Defensive and Other Short-Term Positions.'

Asia-Pacific Equity Fund. This Fund's investment objective is long-term capital
appreciation. The Fund seeks to achieve this objective through investment in
equity securities listed on stock exchanges in countries in the Asia-Pacific
region or issued by companies based in this region. Asia-Pacific countries in
which the Fund invests include, but are not limited to, China, Hong Kong,
Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand, but do
not include Japan and Australia. The equity securities in which the Fund may
invest include common stock, convertible securities, preferred stock, warrants,
American Depositary Receipts (ADRs), European Depositary Receipts and other
depositary receipts. The Fund will normally be invested as fully as practicable
(at least 80%) in equity securities of Asia-Pacific issuers. The Fund may also
invest in high-quality debt securities, as described in 'Investment
Techniques--Temporary Defensive and Other Short-Term Positions.'

The Fund will be managed using the investment philosophy that the Portfolio
Manager, HSBC Asset Management Americas, Inc. and HSBC Asset Management Hong
Kong Limited (HSBC), employ in managing private Asia-Pacific portfolios.
Investment decisions are based upon a disciplined approach that takes into
consideration the following factors: (i) macroeconomic overview of the region;
(ii) specific country analysis; (iii) setting target country weightings; (iv)
evaluation of industry sectors within each country; and (v) selection of
specific stocks. Decisions on company selection include analysis of such
fundamental factors as absolute rates of change of earnings growth, earnings
growth relative to the market and industry, quality of earnings and stability of
earnings growth, quality of management and product line, interest rate
sensitivity and liquidity of the stock. HSBC seeks to take profits when the
Portfolio Manager believes that a market or stock has risen fairly or
disproportionately to other investment opportunities.

The criteria used by the Fund to determine whether an issuer is based in the
Asia-Pacific region are: (1) the country in which the issuer was organized; (2)
the country in which the principal securities market for that issuer is located;
(3) the country in which the issuer derives at least 50% of its revenues or
profits from goods produced or sold, investments made, or services performed; or
(4) the country in which the issuer has at least 50% of its assets situated.

High Yield Fund. This Fund's primary investment objective is to seek a high
level of current income and its secondary objective is capital appreciation,
with preservation of capital as a consideration. The Fund normally seeks to
achieve its objectives by investing at least 65% of its assets in a diversified
portfolio of higher yielding debt securities, including preferred stock and
convertible securities (High Yield Securities), that do not in the opinion of
the Investment Manager involve undue risk relative to their expected return
characteristics. High Yield Securities, which are commonly known as junk bonds,
are ordinarily lower rated and include equivalent unrated securities.

Assets of the Fund not invested in High Yield Securities (ordinarily not to
exceed 35% of the Fund's assets) may be invested in common stocks; preferred
stocks rated Baa or better by Moody's Investor Services, Inc. (Moody's) or BBB
or better by Standard and Poor's Corporation (S&P); debt obligations of all
types rated Baa or higher by Moody's or BBB or better by S&P; U.S. Government
securities; warrants; foreign debt securities of any rating (not to exceed 10%
of the Fund's total assets at the time of investment); money market instruments,
including repurchase agreements on U.S. Government securities; other mortgage-
related securities; financial futures and related options; and participation
interests and assignments in floating rate loans and notes. See 'Investment
Practices and Risk Considerations--High Yield Securities' for information on
High Yield Securities.

Strategic Income Fund. This Fund's investment objective is to seek a high level
of current income. The Fund normally seeks to achieve its objective by investing
in securities from one or more of the following four sectors:

o investment-grade debt of U.S. corporations,

o U.S. Government securities,

o lower-rated high yield debt of U.S. corporations, and

o senior variable or floating rate loans of U.S. corporations,
partnerships, limited liability companies or business entities
organized under U.S. law or domiciled in Canada or U.S.
territories or possessions.

Based on current or anticipated market conditions, the Investment Manager
adjusts the weighting of assets among the sectors to seek an attractive balance
between potential income and potential volatility. Under normal circumstances,
the Fund invests in securities from at least two sectors; however, the Fund may
invest up to 100% of its assets in any sector.

The Fund may seek to achieve its objective by investing directly in individual
securities within the above sectors, or by investing in affiliated or
unaffiliated open-end or closed-end investment companies that invest in these
sectors. For instance, the Fund could invest in high yield debt by investing in
Pilgrim America High Yield Fund, and could invest in U.S. Government securities
by investing in Pilgrim Government Securities Income Fund. The Fund could invest
in senior variable or floating rate loans by investing in closed-end funds that
concentrate in this sector, sometimes referred to as "prime rate" funds. This
may include investments in Pilgrim America Prime Rate Trust. Pilgrim America
High Yield Fund, Pilgrim Government Securities Income Fund and Pilgrim America
Prime Rate Trust are each managed by the Investment Manager. Pilgrim America
High Yield Fund and Pilgrim Government Securities Income Fund are described in
this prospectus. The Fund may also invest in open-end or closed-end funds that
are not managed by the Investment Manager.

The Fund has sought and intends to seek additional exemptive relief from the
Securities and Exchange Commission which, if granted, would permit the Fund
considerable flexibility in investing in affiliated and non-affiliated open-end
and closed-end funds. However, until the exemptive relief described above is
obtained, the Fund may only invest in (i) other open-end Pilgrim America Funds,
(ii) U.S. Government securities and (iii) short-term paper. Until the exemptive
relief described above is obtained, the Fund will be inhibited from investing in
certain of the sectors described above. There can be no assurance that the
exemptive relief described above will be obtained.

Government Securities Income Fund. This Fund's investment objective is to seek
high current income, consistent with liquidity and preservation of capital. The
Fund normally seeks to achieve its objectives by investing at least 70% of its
total assets in securities issued or guaranteed by the U.S. Government and the
following agencies or instrumentalities of the U.S. Government: GNMA, Federal
National Mortgage Association (FNMA), and the Federal Home Loan Mortgage
Corporation (FHLMC). The 70% threshold may not be met due to changes in value of
the Fund's portfolio or due to the sale of portfolio securities due to
redemptions. In such instances, further purchases by the Fund will be of U.S.
Government securities until the 70% level is restored. The remainder of the
Fund's assets may be invested in securities issued by other agencies and
instrumentalities of the U.S. Government and in instruments collateralized by
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.

The U.S. Government securities in which the Fund may invest include, but are not
limited to, the following: (1) direct obligations of the U.S. Treasury including
Treasury bills (maturities of one year or less), Treasury notes (maturities of
one to ten years), and Treasury bonds (generally maturities of greater than ten
years and up to 30 years), and (2) mortgage-backed securities that are issued or
guaranteed by GNMA, FNMA, or FHLMC. The Fund may invest in short-term,
intermediate-term and long-term U.S. Government securities. The Investment
Manager will determine the exact composition and weighted average maturity of
the Fund's portfolio on the basis of its judgment of existing market conditions.
The Fund does not invest in highly leveraged derivatives, such as swaps,
interest-only or principal-only stripped mortgage-backed securities, or interest
rate futures contracts.

INVESTMENT PRACTICES AND RISK CONSIDERATIONS

The following pages contain information about certain types of securities in
which one or more the Funds may invest and strategies the Funds may employ in
pursuit of the investment objectives. See the Statement of Additional
Information for more detailed information on these investment techniques and the
securities in which the Funds may invest.

Risk Considerations

The investment objectives and policies of the Funds described above should be
carefully considered before investing. There is no assurance that a Fund will
achieve its investment objectives. As with any security, an investment in a
Fund's shares involves certain risks, including loss of principal. Each Fund is
subject to varying degrees of financial, market and credit risks.

Temporary Defensive and Other Short-Term Positions. Each Fund's assets may be
invested in certain short-term, high-quality debt instruments (and, in the case
of Bank and Thrift Fund, investment grade debt instruments) and in U.S.
Government securities for the following purposes: (i) to meet anticipated
day-to-day operating expenses; (ii) pending the Investment Manager's or
Portfolio Manager's ability to invest cash inflows; (iii) to permit the Fund to
meet redemption requests; and (iv) for temporary defensive purposes. Bank and
Thrift Fund, MagnaCap Fund, LargeCap Value Fund, MidCap Value Fund and
Asia-Pacific Equity Fund may also invest in such securities if the Fund's assets
are insufficient for effective investment in equities.

Although it is expected that each Fund will normally be invested consistent with
its investment objectives and policies, the short-term instruments in which a
Fund (except Government Securities Income Fund) may invest include: (i)
short-term obligations of the U.S. Government and its agencies,
instrumentalities, authorities or political subdivisions; (ii) other short-term
debt securities; (iii) commercial paper, including master notes; (iv) bank
obligations, including certificates of deposit, time deposits and bankers'
acceptances; and (v) repurchase agreements. LargeCap Value Fund, MidCap Value
Fund and Asia-Pacific Equity Fund may also invest in long-term U.S. Government
securities and money market funds, while Asia-Pacific Equity Fund may invest in
short-term obligations of foreign governments and their agencies,
instrumentalities, authorities, or political subdivisions. The short-term
instruments in which Government Securities Income Fund may invest include
short-term U.S. Government securities and repurchase agreements on U.S.
Government securities. The Funds will normally invest in short-term instruments
that do not have a maturity of greater than one year.

Bank and Thrift Fund: Securities of Banks and Thrifts. Bank and Thrift Fund
invests primarily in equity securities of banks and thrifts. A 'money center
bank' is a bank or bank holding company that is typically located in an
international financial center and has a strong international business with a
significant percentage of its assets outside the United States. 'Regional banks'
are banks and bank holding companies which provide full service banking, often
operating in two or more states in the same geographic area, and whose assets
are primarily related to domestic business. Regional banks are smaller than
money center banks and also may include banks conducting business in a single
state or city and banks operating in a limited number of states in one or more
geographic regions. The third category which constitutes the majority in number
of banking organizations are typically smaller institutions that are more
geographically restricted and less well-known than money center banks or
regional banks and are commonly described as 'community banks.'

The Bank and Thrift Fund may invest in the securities of banks or thrifts that
are relatively smaller, engaged in business mostly within their geographic
region, and are less well-known to the general investment community than money
center and larger regional banks. The shares of depository institutions in which
the Fund may invest may not be listed or traded on a national securities
exchange or on the National Association of Securities Dealers Automated
Quotation System ('NASDAQ'); as a result there may be limitations on the Fund's
ability to dispose of them at times and at prices that are most advantageous to
the Fund.

The profitability of banks and thrifts is largely dependent upon interest rates
and the resulting availability and cost of capital funds over which these
concerns have limited control, and, in the past, such profitability has shown
significant fluctuation as a result of volatile interest rate levels. In
addition, general economic conditions are important to the operations of these
concerns, with exposure to credit losses resulting from financial difficulties
of borrowers.

Changes in state and Federal law are producing significant changes in the
banking and financial services industries. Deregulation has resulted in the
diversification of certain financial products and services offered by banks and
financial services companies, creating increased competition between them. In
addition, state and federal legislation authorizing interstate acquisitions as
well as interstate branching has facilitated the increasing consolidation of the
banking and thrift industries. Although regional banks involved in intrastate
and interstate mergers and acquisitions may benefit from such regulatory
changes, those which do not participate in such consolidation may find that it
is increasingly difficult to compete effectively against larger banking
combinations. Proposals to change the laws and regulations governing banks and
companies that control banks are frequently introduced at the federal and state
levels and before various bank regulatory agencies. The likelihood of any
changes and the impact such changes might have are impossible to determine.

The last few years have seen a significant amount of regulatory and legislative
activity focused on the expansion of bank powers and diversification of services
that banks may offer. These expanded powers have exposed banks to
well-established competitors and have eroded the distinctions between regional
banks, community banks, thrifts and other financial institutions.

The thrifts in which the Bank and Thrift Fund invests generally are subject to
the same risks as banks discussed above. Such risks include interest rate
changes, credit risks, and regulatory risks. Because thrifts differ in certain
respects from banks, however, thrifts may be affected by such risks in a
different manner than banks. Traditionally, thrifts have different and less
diversified products than banks, have a greater concentration of real estate in
their lending portfolio, and are more concentrated geographically than banks.
Thrifts and their holding companies are subject to extensive government
regulation and supervision including regular examinations of thrift holding
companies by the Office of Thrift Supervision (the 'OTS'). Such regulations have
undergone substantial change since the 1980's and will probably change in the
next few years.

Midcap Company Equity Securities. The MidCap Value Fund will invest
substantially all of its assets, and MagnaCap Fund, Bank and Thrift Fund,
LargeCap Value Fund and Asia-Pacific Equity Fund may invest, in the equity
securities of middle capitalization companies. Investment in middle
capitalization companies may involve greater risk than is customarily associated
with securities of larger, more established companies. These securities may be
less marketable and subject to more abrupt or erratic market movements than
securities of larger companies.

Investments in Foreign Securities. Asia-Pacific Equity Fund invests primarily,
and MagnaCap Fund may invest up to 5% of its total assets in certain foreign
securities (including ADRs). High Yield Fund may invest up to 10% of its total
assets in debt obligations (including preferred stocks) issued or guaranteed by
foreign corporations, certain supranational entities (such as the World Bank)
and foreign governments (including political subdivisions having taxing
authority) or their agencies or instrumentalities, including ADRs.

These securities may be denominated in either U.S. dollars or in non-U.S.
currencies.

There are certain risks in owning foreign securities, including those resulting
from: (i) fluctuations in currency exchange rates; (ii) devaluation of
currencies; (iii) political or economic developments and the possible imposition
of currency exchange blockages or other foreign governmental laws or
restrictions; (iv) reduced availability of public information concerning
issuers; (v) accounting, auditing and financial reporting standards or other
regulatory practices and requirements that are not uniform when compared to
those applicable to domestic companies; and (vi) settlement and clearance
procedures in some countries that may not be reliable and can result in delays
in settlement; (vii) higher transactional and custodial expenses than for
domestic securities; and (viii) limitations on foreign ownership of equity
securities. Also, securities of many foreign companies may be less liquid and
the prices more volatile than those of domestic companies. With certain foreign
countries, there is the possibility of expropriation, nationalization,
confiscatory taxation and limitations on the use or removal of funds or other
assets of the Funds, including the withholding of dividends.

Emerging Market Investments. Asia-Pacific Equity Fund may invest in emerging
market securities issued by companies based in emerging market countries in the
Asia-Pacific region. An emerging market country is generally considered to be a
country whose economy is less developed or mature than economies in other more
developed countries or whose markets are undergoing a process of relatively
basic development. 'Emerging market countries' consist of all countries
determined by the World Bank or the United Nations to have developing or
emerging economies and markets. Because of less developed markets and economies
and, in some countries, less mature governments and governmental institutions,
the risks of investing in foreign securities can be intensified in the case of
investments in issuers domiciled or doing substantial business in emerging
market countries.

In addition to the risks generally of investing in emerging market securities,
there are particular risks associated with investing in developing Asia-Pacific
countries including: (i) certain markets, such as those of China, being in the
earliest stages of development; (ii) high concentration of market capitalization
and trading volume in a small number of issuers representing a limited number of
industries, as well as a high concentration of investors and financial
intermediaries; (iii) political and social uncertainties; (iv) over-dependence
on exports, especially with respect to primary commodities, making these
economies vulnerable to changes in commodity prices; (v) overburdened
infrastructure and obsolete financial systems; (vi) environmental problems;
(vii) less well developed legal systems than many other industrialized nations;
and (viii) less reliable custodial services and settlement practices.

Corporate Debt Securities. Strategic Income Fund may invest up to 100% of its
assets in investment-grade debt of U.S. corporations, while High Yield Fund may
invest in these and in lower-rated corporate debt securities. In addition, each
Fund may also invest in high quality short-term corporate debt for temporary
defensive purposes. See "Temporary Defensive and Other Short-Term Positions"
below. Corporate debt securities include corporate bonds, debentures, notes and
other similar corporate debt instruments, including convertible securities. The
investment return on a corporate debt security reflects interest earnings and
changes in the market value of the security. The market value of a corporate
debt security will generally increase when interest rates decline, and decrease
when interest rates rise. There is also the risk that the issuer of a debt
security will be unable to pay interest or principal at the time called for by
the instrument. Investments in corporate debt securities that are rated below
investment grade are described in "High Yield Securities" below.

High Yield Securities. High Yield Fund and Strategic Income Fund may invest in
High Yield Securities, which are high yield/high risk debt securities that are
rated lower than Baa by Moody's or BBB by S&P, or if not rated by Moody's or
S&P, of equivalent quality. High Yield Securities often are referred to as 'junk
bonds' and include certain corporate debt obligations, higher yielding preferred
stock and mortgage-related securities, and securities convertible into the
foregoing. Investments in High Yield Securities generally provide greater income
and increased opportunity for capital appreciation than investments in higher
quality debt securities, but they also typically entail greater potential price
volatility and principal and income risk. Generally, the Fund will invest in
securities rated no lower than B by Moody's or S&P, unless the Investment
Manager believes the financial condition of the issuer or other available
protections reduce the risk to the Fund. For example, the Fund may invest in
such a security if the Investment Manager believes the issuer's assets are
sufficient for the issuer to repay its outstanding obligations. Nevertheless,
the Fund may invest in securities rated C or D if the Investment Manager
perceives greater value in these securities than it believes is reflected in
such securities' prevailing market price.

High Yield Securities are not considered to be investment grade. They are
regarded as predominantly speculative with respect to the issuing company's
continuing ability to meet principal and interest payments. The prices of High
Yield Securities have been found to be less sensitive to interest-rate changes
than higher-rated investments, but more sensitive to adverse economic downturns
or individual corporate developments. A projection of an economic downturn or of
a period of rising interest rates, for example, could cause a decline in High
Yield Securities prices. In the case of High Yield Securities structured as
zero-coupon or pay-in-kind securities, their market prices are affected to a
greater extent by interest rate changes, and therefore tend to be more volatile
than securities that pay interest periodically and in cash.

The secondary market in which High Yield Securities are traded is generally less
liquid than the market for higher grade bonds. Less liquidity in the secondary
trading market could adversely affect the price at which the Fund could sell a
High Yield Security, and could adversely affect the daily net asset value of the
Fund's shares. At times of less liquidity, it may be more difficult to value
High Yield Securities because this valuation may require more research, and
elements of judgment may play a greater role in the valuation since there is
less reliable, objective data available. In pursuing the Fund's objectives, the
Investment Manager seeks to identify situations in which the rating agencies
have not fully perceived the value of the security.

Based upon the weighted average ratings of all High Yield Securities held during
High Yield Fund's most recent fiscal year ended June 30, 1998, the percentage of
the Fund's total High Yield Securities represented by (1) High Yield Securities
rated by a nationally recognized statistical rating organization, separated into
each applicable rating category (Aaa, Baa, Ba, B, Caa, or Ca by Moody's or AAA,
BBB, BB, B, CCC, or CC by S&P) by monthly dollar-weighted average is AAA--__%,
BBB--__%, BB--____%, B--____%, CCC--____%, and CC--____%, respectively, and (2)
unrated High Yield Securities as a group--____%.

The following are excerpts from Moody's description of its bond ratings:
Ba--judged to have speculative elements; their future cannot be considered as
well assured. B--generally lack characteristics of a desirable investment.
Caa--are of poor standing; such issues may be in default or there may be present
elements of danger with respect to principal or interest. Ca--speculative in a
high degree; often in default. C--lowest rate class of bonds; regarded as having
extremely poor prospects. Moody's also applies numerical indicators 1, 2 and 3
to rating categories. The modifier 1 indicates that the security is in the
higher end of its rating category; 2 indicates a mid-range ranking; and 3
indicates a ranking towards the lower end of the category. The following are
excerpts from S&P's description of its bond ratings: BB, B, CCC, CC,
C--predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with terms of the obligation; BB indicates the lowest
degree of speculation and C the highest. S&P applies indicators '+,' no
character, and '-' to its rating categories. The indicators show relative
standing within the major rating categories.

Other Investment Companies. Strategic Income Fund, LargeCap Value Fund, MidCap
Value Fund, Asia-Pacific Equity Fund and Bank and Thrift Fund may each invest in
other investment companies ("Underlying Funds"). LargeCap Value Fund, MidCap
Value Fund, Asia-Pacific Equity Fund and Bank and Thrift Fund currently may not
(i) invest more than 10% of their total assets in other investment companies,
(ii) invest more than 5% of their total assets in any one investment company, or
(iii) purchase greater than 3% of the total outstanding securities of any one
Underlying Fund. Strategic Income Fund currently may invest up to 100% of its
assets in open-end investment companies ("mutual funds") for which PAII serves
as the Investment Manager.

Strategic Income Fund has sought and intends to seek additional exemptive relief
from the Securities and Exchange Commission which, if granted, would permit the
Fund to invest in both (i) mutual funds and closed-end investment companies for
which PAII serves as Investment Manager ("Affiliated Funds"), and (ii) mutual
funds and closed-end investment companies for which PAII does not serve as
Investment Manager ("Unaffiliated Funds"). If such relief is granted, the Fund
will have considerable flexibility in investing in Affiliated Funds and
Unaffiliated Funds. In addition, if the exemptive relief described above is
granted, the Strategic Income Fund will be able to purchase shares directly from
affiliated closed-end funds. There can be no assurance that the exemptive relief
will be obtained.

To the extent that the assets of the Strategic Income Fund are invested in
Underlying Funds, the Fund's investment performance is directly related to the
investment performance of the Underlying Funds held. The ability of the
Strategic Income Fund to meet its investment objective is directly related to
the ability of the Underlying Funds to meet their objectives, as well as to the
allocation among the Underlying Funds by the Investment Manager. There can be no
assurance that the investment objective of the Strategic Income Fund or any
Underlying Fund will be achieved.

There are some potential disadvantages associated with investing in other
investment companies. For example, you would indirectly bear additional fees.
The Underlying Funds pay various fees, including, management fees,
administration fees, and custody fees. By investing in those Underlying Funds
indirectly, you indirectly pay a proportionate share of the expenses of those
funds (including management fees, administration fees, and custodian fees), and
you also pay the expenses of the Fund. However, the Investment Manager has
agreed to waive a portion of its management fee from the Strategic Income Fund
in proportion to the Fund's investment in an Affiliated Fund. In addition, you
will bear your proportionate share of expenses related to the distribution of
the Fund's Shares, and also may indirectly bear expenses paid by an Underlying
Fund related to the distribution of its shares. However, to the extent that
assets of Strategic Income Fund are invested in Affiliated Funds, the
Distributor has agreed to waive a portion of the Fund's distribution (12b-1) fee
in proportion to the Fund's investment in an Affiliated Fund to reflect its
allocable share of the distribution fee paid by the Affiliated Fund. The
Strategic Income Fund may only buy shares of a load fund where the Investment
Manager reasonably believes the shares may be purchased without a sales load
through quantity discounts, waivers or otherwise. The Fund will aggregate any
sales charges and distribution and shareholder service expenses it pays on
Underlying Funds to ensure that such aggregate amounts do not exceed limits
imposed by the NASD.

There are some potential advantages associated with an investment in a
closed-end investment company. For example, a Fund may be able to purchase
closed-end fund shares at a discount to net asset value, thereby yielding assets
at work for the Fund that are greater than the amount invested. In addition, if
a Fund invests in a closed-end fund that is exchange listed, it may be able to
get exposure to relatively illiquid assets through a liquid investment.

If the exemptive relief described above is granted, the Strategic Income Fund
may be required to comply with a condition that an Unaffiliated Fund whose
shares are purchased by the Fund is not obligated to redeem more than 1% of the
Unaffiliated Fund's outstanding securities held by the Fund during any 30 day
period. In such a case, shares held by the Strategic Income Fund in excess of 1%
of an Unaffiliated Fund's outstanding securities will be considered illiquid,
and therefore, together with other such securities, may not exceed 15% of the
Fund's net assets. In light of the various legal constraints on buying and
selling shares of Unaffiliated Funds, occasions may arise when the Investment
Manager might not take advantage of certain opportunities to invest in an
Unaffiliated Fund, and may seek suitable alternatives.

Some Unaffiliated Funds may elect to make payment for the redemption of shares
by a distribution in kind of securities from its portfolio, instead of in cash.
If a Fund receives securities as part of an in kind redemption from an
Underlying Fund, the Fund may receive and hold such securities if the Investment
Manager believes it is in the best interest of shareholders, whether or not the
purchase of such securities would have been permitted by the investment
objectives and policies of the Fund.

The securities that these Unaffiliated Funds might hold may include, but are not
limited to, High Yield Securities, Senior Loans, U.S. Government securities,
short term instruments, and various fixed income securities. In certain
instances, some of the Unaffiliated Funds may also buy or sell interest rate
futures contracts relating to debt securities and/or write or buy put and call
options relating to interest rate futures contracts. Depending on an
Unaffiliated Fund's investment objective, policies, and restrictions, additional
risks may be created by a Fund's investment in an Unaffiliated Fund.
Unaffiliated Funds may follow some or all of the investment practices of the
Fund and may follow other investment practices. The Investment Manager has no
control over the investment activities of the Unaffiliated Funds. There may, in
fact, be additional investment practices, not discussed in this Prospectus or in
the Statement of Additional Information, that the Unaffiliated Funds may engage
in from time to time. In addition, an Underlying Fund may be able to invest
defensively in assets other than those normally called for by the Underlying
Fund's investment objectives or policies. In such a case, an investment in the
Underlying Fund may not represent the sectors to the degree contemplated by the
Investment Manager when it invested in the Underlying Fund.

As a result of the Fund's investment in the Underlying Funds, you may receive
taxable capital gains distributions to a greater extent than would be the case
if you invested directly in the Underlying Funds. See "Dividends, Distributions
and Taxes."

Investment decisions by the investment advisers of the Underlying Funds are made
independently of the Fund and the Investment Manager. Therefore, the investment
adviser of one Underlying Fund may be purchasing shares of the same issuer whose
shares are being sold by the investment adviser of another Underlying Fund. The
result of this would be an indirect expense to the Fund without accomplishing
any investment purpose.

The Investment Manager will select the Affiliated and Unaffiliated Funds in
which the Fund will invest based on a variety of factors including, but not
limited to, investment style and objective, total return performance, asset
size, industry rankings, operational data, various portfolio statistics and
other factors it believes are important.

PPR, which is an affiliated closed-end fund in which Strategic Income Fund may
be able to invest, invests primarily in Senior Loans and is subject to credit
and other risks. See "Senior Loans" below. PPR is traded in the New York Stock
Exchange. Shares of PPR may trade at a discount or at a premium to NAV. If PPR
is trading at a premium to NAV, PPR may issue more shares, which could put
downward pressure on the market price of PPR's shares. PPR may borrow to acquire
additional income-producing investments when the Investment Manager believes
that the use of borrowed proceeds will enhance PPR's yield. Borrowing for
investment purposes increases both investment opportunity and investment risk.
Capital raised through borrowings will be subject to interest and other costs.
There can be no assurance that PPR's income from borrowed proceeds will exceed
these costs. In the event of a default on one or more Senior Loans or other
interest-bearing instruments held by PPR, borrowing would exaggerate the loss to
PPR and may exaggerate the effect on PPR's NAV. PPR may borrow up to 33 1/3%, or
such other percentage permitted by law, of its total assets (including the
amount borrowed) less all liabilities other than borrowings.

Senior Loans. The Strategic Income Fund may invest in interests in variable or
floating rate loans ("Senior Loans"), which, in most circumstances, are fully
collateralized by assets of a corporation, partnership, limited liability
company, or other business entity. The Strategic Income Fund will invest only in
Senior Loans that are U.S. dollar-denominated. Senior Loans are considered loans
that hold a senior position in the capital structure of the borrower. These may
include loans that hold the most senior position, that hold an equal ranking
with other senior debt, or loans that are, in the judgment of the Investment
Manager, in the category of senior debt of the borrower. Senior Loans that the
Strategic Income Fund may acquire include participation interests in lease
financings ("Lease Participations").

Substantial increases in interest rates may cause an increase in loan defaults
as borrowers may lack resources to meet higher debt service requirements. Senior
Loans generally require the consent of the borrower prior to sale or assignment,
which may delay or impede the Strategic Income Fund's ability to sell the Senior
Loans. Senior Loans will be considered illiquid, and therefore, together with
other such securities, may not exceed 15% of the Fund's net assets.

Credit Risks. Although the Strategic Income Fund will generally invest in Senior
Loans that will be fully collateralized with assets whose market value, at the
time of acquisition, equals or exceeds the principal amount of the Senior Loan,
the collateral may decline in value, be relatively illiquid, or may lose all or
substantially all of its value subsequent to the Fund's investment in such
Senior Loan, causing the Senior Loan to be undercollateralized. Senior Loans are
also subject to the risk of nonpayment of scheduled interest or principal
payments. To the extent that the Strategic Income Fund's investment is in a
Senior Loan acquired from another lender, the Fund may be subject to certain
credit risks with respect to that lender.

Limited Secondary Market for Senior Loans. Although it is growing, the secondary
market for Senior Loans is currently limited. There is no organized exchange or
board of trade on which Senior Loans may be traded. Accordingly, some or many of
the Senior Loans in which the Strategic Income Fund invests will be relatively
illiquid. The Fund may have difficulty disposing of illiquid assets if it needs
cash to repay debt, to pay dividends, to pay expenses or to take advantage of
new investment opportunities. In addition, because the secondary market for
Senior Loans may be limited, it may be difficult to value Senior Loans.

Hybrid Loans. Hybrid Loans are similar to Senior Loans that generally offer less
covenant or other protections than traditional Senior Loans while still being
collateralized. The Strategic Income Fund may invest only in Hybrid Loans that
are secured debt of the borrower, although they may not in all instances be
considered senior debt of the borrower. Hybrid Loans may not include covenants
that are typical of Senior Loans. As a result, Hybrid Loans present additional
risks besides those associated with traditional Senior Loans. Because the
lenders in Hybrid Loans waive or forego certain loan covenants, their
negotiating power or voting rights in the event of a default may be diminished.
In addition, because the Fund's security interest in some of the collateral may
be subordinate to other creditors, the risk of nonpayment of interest or loss of
principal may be greater than would be the case with conventional Senior Loans.

Subordinated and Unsecured Loans. The Strategic Income Fund may also invest up
to ___% of its total assets, measured at the time of investment, in subordinated
and unsecured loans. The Fund may acquire a subordinated loan only if, at the
time of acquisition, it acquires or holds a Senior Loan from the same borrower.
The primary risk arising from a holder's subordination is the potential loss in
the event of default by the issuer of the loans. Unsecured loans are not secured
by any specific collateral of the borrower. They may pose a greater risk of
nonpayment of interest or loss of principal than do secured loans. The Strategic
Income Fund will acquire unsecured loans only where the Investment Manager
believes, at the time of acquisition, that the Fund would have the right to
payment upon default that is not subordinate to any other creditor.

Restricted and Illiquid Securities. Each Fund may invest in restricted and
illiquid securities. A Fund may invest in an illiquid or restricted security if
the Investment Manager believes that it presents an attractive investment
opportunity. Generally, a security is considered illiquid if it cannot be
disposed of within seven days at approximately the value at which it is carried.
This illiquidity might prevent the sale of the security at a time when the
Investment Manager might wish to sell, and these securities could have the
effect of decreasing the overall level of the Fund's liquidity. Further, the
lack of an established secondary market may make it more difficult to value
illiquid securities, requiring the Fund to rely on judgments that may be
somewhat subjective in determining value, which could vary from the amount the
Fund could realize upon disposition. Each Fund may only invest up to 15% of its
net assets in illiquid securities.

Restricted securities, including private placements, are subject to legal or
contractual restrictions on resale. They can be eligible for purchase without
Securities and Exchange Commission registration by certain institutional
investors known as 'qualified institutional buyers,' and under the Fund's
procedures, restricted securities could be treated as liquid. However, some
restricted securities may be illiquid and restricted securities that are treated
as liquid could be less liquid than registered securities traded on established
secondary markets.

Mortgage-Related Securities. Government Securities Income Fund, High Yield Fund
and Strategic Income Fund may invest up to 100% of their assets in certain types
of mortgage-related securities. High Yield Fund may invest up to 35% of its
total assets in mortgage-related securities. Investments in mortgage-related
securities involve certain risks. Although mortgage loans underlying a
mortgage-backed security may have maturities of up to 30 years, the actual
average life of a mortgage-backed security typically will be substantially less
because (1) the mortgages will be subject to normal principal amortization, and
(2) may be prepaid prior to maturity due to the sale of the underlying property,
the refinancing of the loan or foreclosure. Early prepayment may expose a Fund
to a lower rate of return upon reinvestment of the principal. Prepayment rates
vary widely and cannot be accurately predicted. They may be affected by changes
in market interest rates. Therefore, prepayments will be reinvested at rates
that are available upon receipt, which likely will be higher or lower than the
original yield on the certificates. Accordingly, the actual maturity and
realized yield on mortgage-backed securities will vary from the designated
maturity and yield on the original security based upon the prepayment experience
of the underlying pool of mortgages.

Like other fixed income securities, when interest rates rise, the value of a
mortgage-backed security generally will decline; however, when interest rates
are declining, the value of mortgage-backed securities with prepayment features
may not increase as much as other fixed income securities. The rate of
prepayments on underlying mortgages will affect the price and volatility of a
mortgage-related security, and may have the effect of shortening or extending
the effective maturity of the security beyond what was anticipated at the time
of the purchase. To the extent that unanticipated rates of prepayment on
underlying mortgages increase the effective maturity of a mortgage-related
security, the volatility of such security can be expected to increase. In
addition, the value of these securities may fluctuate in response to the
market's perception of the creditworthiness of the issuers of mortgage-related
securities owned by a Fund. Additionally, although mortgages and
mortgage-related securities are generally supported by some form of government
or private guarantee and/or insurance, there is no assurance that private
guarantors or insurers will be able to meet their obligations.

U.S. Government Securities. Each Fund may invest in U.S. Government securities.
U.S. Government securities include direct obligations of the U.S. Treasury (such
as U.S. Treasury bills, notes and bonds) and obligations directly issued or
guaranteed by U.S. Government agencies or instrumentalities. Some obligations
issued or guaranteed by agencies or instrumentalities of the U.S. Government are
backed by the full faith and credit of the U.S. Government (such as GNMA
certificates); others are backed only by the right of the issuer to borrow from
the U.S. Treasury (such as obligations of FNMA); and still others are backed
only by the credit of the instrumentality (such as obligations of FHLMC), and
thus may be subject to varying degrees of credit risk. While U.S. Government
securities provide substantial protection against credit risk, they do not
protect investors against price declines in the securities due to changing
interest rates. Investors also should refer to the discussion of
'Mortgage-Related Securities.'

Investment Techniques

Borrowing. Bank and Thrift Fund may borrow money from banks to obtain short-term
credits as are necessary for the clearance of securities transactions, but not
in an amount exceeding 15% of its total assets. All Funds except Bank and Thrift
may borrow from banks solely for temporary or emergency purposes up to certain
amounts (10% of total assets in the case of Government Securities Income Fund,
5% of total assets in the case of MagnaCap Fund and High Yield Fund, and 33 1/3%
of total assets in the case of MidCap Value Fund, LargeCap Value Fund,
Asia-Pacific Equity Fund and Strategic Income Fund). Government Securities
Income Fund may not make any additional investment while any such borrowings
exceed 5% of its total assets. The Government Securities Income Fund's entry
into reverse repurchase agreements and dollar-roll transactions and any Fund's
entry into delayed delivery transactions (including those related to pair-offs)
shall not be subject to the above limits on borrowings. Borrowing may exaggerate
the effect of any increase or decrease in the value of portfolio securities or
the net asset value (NAV) of a Fund, and money borrowed will be subject to
interest costs.

Foreign Currency Transactions. Substantially all of the assets of the
Asia-Pacific Equity Fund will be invested in securities denominated in foreign
currencies and a corresponding portion of the Fund's revenues will be received
in such currencies. Unfavorable changes in the relationship between the U.S.
dollar and the relevant foreign currencies, therefore, will adversely affect the
value of the Fund's shares. The Asia-Pacific Equity Fund ordinarily will not
engage in hedging transactions to guard against the risk of currency
fluctuation. However, the Fund reserves the right to do so, and, toward this
end, may enter into forward foreign currency contracts. This investment
technique is described in the Statement of Additional Information.

Dollar Roll Transactions. Government Securities Income Fund and Strategic Income
Fund may engage in dollar roll transactions with respect to mortgage-backed
securities issued by GNMA, FNMA and FHLMC in order to enhance portfolio returns
and manage prepayment risks. In a dollar roll transaction, the Fund sells a
mortgage security held in the portfolio to a financial institution such as a
bank or broker-dealer, and simultaneously agrees to repurchase a substantially
similar security from the institution at a later date at an agreed upon price.
During the period between the sale and repurchase, the Fund will not be entitled
to receive interest and principal payments on the securities sold. Proceeds of
the sale will be invested in short-term instruments, and the income from these
investments, together with any additional fee income received on the sale, could
generate income for the Fund exceeding the yield on the sold security. When it
enters into a dollar roll transaction, the Fund will maintain with its custodian
in a segregated account cash and/or liquid assets in a dollar amount sufficient
to make payment for the obligations to be repurchased. These securities are
marked to market daily and are maintained until the transaction is settled.

Lending Portfolio Securities. In order to generate additional income, MagnaCap
Fund, High Yield Fund, Strategic Income Fund and Government Securities Income
Fund may lend its portfolio securities in an amount up to 33 1/3% of total Fund
assets to broker-dealers, major banks, or other recognized domestic
institutional borrowers of securities. No lending may be made with any companies
affiliated with the Investment Manager. The borrower at all times during the
loan must maintain with that Fund cash or high quality securities or an
irrevocable letter of credit equal in value to at least 100% of the value of the
securities loaned. During the time portfolio securities are on loan, the
borrower pays the Fund any dividends or interest paid on such securities, and
the Fund may invest the cash collateral and earn additional income, or it may
receive an agreed-upon amount of interest income from the borrower who has
delivered equivalent collateral or a letter of credit. As with other extensions
of credit, there are risks of delay in recovery or even loss of rights in the
collateral should the borrower fail financially.

Pairing Off Transactions. Government Securities Income Fund and Strategic Income
Fund engages in a pairing-off transaction when it commits to purchase a security
at a future date, and then the Fund 'pairs-off' the purchase with a sale of the
same security prior to or on the original settlement date. At all times when the
Fund has an outstanding commitment to purchase securities, the Fund will
maintain with its custodian in a segregated account cash and/or liquid assets
equal to the value of the outstanding purchase commitments. When the time comes
to pay for the securities acquired on a delayed delivery basis, the Fund will
meet its obligations from the available cash flow, sale of the securities held
in the separate account, sale of other securities or, although it would not
normally expect to do so, from sale of the when-issued securities themselves
(which may have a market value greater or less than the Fund's payment
obligation). Whether a pairing-off transaction produces a gain for the Fund
depends upon the movement of interest rates. If interest rates decease, then the
money received upon the sale of the same security will be greater than the
anticipated amount needed at the time the commitment to purchase the security at
the future date was entered and the Fund will experience a gain. However, if
interest rates increase, then the money received upon the sale of the same
security will be less than the anticipated amount needed at the time the
commitment to purchase the security at the future date was entered and the Fund
will experience a loss.

Reverse Repurchase Agreements. Government Securities Income Fund and Strategic
Income Fund may enter into reverse repurchase agreement transactions, which
involve the sale of U.S. Government Securities held by the Fund, with an
agreement that the Fund will repurchase the securities at an agreed upon price
and date. The Fund will employ reverse repurchase agreements when necessary to
meet unanticipated net redemptions and avoid liquidation of portfolio
investments during unfavorable market conditions. At the time it enters into a
reverse repurchase agreement, the Fund will place in a segregated account with
its custodian cash and/or liquid assets having a dollar value equal to the
repurchase price. Reverse repurchase agreements, together with the Fund's other
borrowings, may not exceed 33 1/3% of the Fund's total assets.

Use of Derivatives. Generally, derivatives can be characterized as financial
instruments whose performance is derived, at least in part, from the performance
of an underlying asset or assets. The Funds will not invest in highly leveraging
derivatives, such as interest-only or principal-only stripped mortgage-backed
securities or swaps. In the case of MidCap Value Fund, LargeCap Value Fund and
Asia-Pacific Equity Fund, it is expected that derivatives will not ordinarily be
used for any of the Funds, but a Fund may make occasional use of certain
derivatives for hedging. For example, MidCap Value Fund, LargeCap Value Fund and
Asia-Pacific Equity Fund may purchase put options, which give the Fund the right
to sell a security it holds at a specified price. A Fund would purchase an
option to attempt to preserve the value of securities that it holds, which it
could do by exercising the option if the price of the security falls below the
'strike price' for the option. The Funds will not engage in any other type of
options transactions.

Another use of derivatives that only may be employed by the Asia-Pacific Equity
Fund is to enter into forward currency contracts and foreign exchange futures
('futures') contracts, which provide for delivery of a certain amount of foreign
currency to the Fund on a specified date. The Fund would enter into a forward
currency or futures contract when it intends to purchase or sell a security
denominated in a foreign currency and it desires to 'lock in' the U.S. dollar
price of the security. The Funds will not engage in any other type of forward
contracts or futures contracts. For additional information on options and
foreign currency contracts, see 'Supplemental Discussion of Risks Associated
with the Funds' Use of Investment Policies and Investment Techniques--Options on
Securities' and '--Foreign Currency Exchange Transactions' in the Statement of
Additional Information.

Government Securities Income Fund, Strategic Income Fund and High Yield Fund may
invest in U.S. Government agency mortgage-backed securities issued or guaranteed
by the U.S. Government or one of its agencies or instrumentalities, including
GNMA, FNMA, and FHLMC. These instruments might be considered derivatives. The
primary risks associated with these instruments is the risk that their value
will change with changes in interest rates and prepayment risk. For information
on mortgage-backed securities, see 'Investment Practices and Risk
Considerations--Mortgage-Related Securities' in this Prospectus, 'Investment
Objectives and Policies--U.S. Government Securities' in Government Securities
Income Fund's Statement of Additional Information, and 'Investment Objectives
and Policies--Mortgage-Related Securities' in High Yield Fund's Statement of
Additional Information.

Other uses of derivatives that may be employed only by High Yield Fund and
Strategic Income Fund include writing covered call options; purchasing call
options; and engaging in financial futures and related options. It is expected
that these instruments ordinarily will not be used for High Yield Fund or
Strategic Income Fund; however, the Fund may make occasional use of these
techniques. When a Fund writes a covered call option, it receives a premium for
entering into a contract to sell a security in the future at an agreed upon
price and date. A Fund would write a call option if it believes that the premium
would increase total return. The primary risk of writing call options is that,
during the option period, the covered call writer has, in return for the premium
on the option, given up the opportunity to profit from a price increase in the
underlying securities above the exercise price. A Fund may purchase call options
for the purpose of 'closing out' a position on a security on which it has
already written a call option.

High Yield Fund and Strategic Income Fund also may use financial futures
contracts and related options for 'hedging' purposes. A Fund would purchase a
financial futures contract (such as an interest rate futures contract or
securities index futures contract) to protect against a decline in the value of
its portfolio or to gain exposure to securities which the Fund otherwise wishes
to purchase. A risk of using financial futures contracts for hedging purposes is
that the Investment Manager might imperfectly judge the market's direction, so
that the hedge might not correlate to the market's movements and may be
ineffective. Furthermore, if a Fund buys a futures contract to gain exposure to
securities, the Fund is exposed to the risk of change in the value of the
underlying securities. For information on options on securities and financial
futures and related options, see 'Investment Objectives and Policies--Option
Writing' and '--Financial Futures Contracts and Related Options' in High Yield
Fund's Statement of Additional Information.

DIVERSIFICATION AND CHANGES IN POLICIES

Each Fund is diversified, so that with respect to 75% of its assets, it may not
invest more than 5% of its assets (measured at market value at the time of
investment) in securities of any one issuer, except that this restriction does
not apply to U.S. Government securities.

The first sentence in the description of each Fund under 'The Funds' Investment
Objectives and Policies,' above, states the Fund's investment objectives. These
investment objectives are 'fundamental.' The other investment policies of
Government Securities Income Fund described in the first paragraph under 'The
Funds' Investment Objectives and Policies--Government Securities Income Fund'
are also 'fundamental.' Fundamental policies may only be changed with the
approval of a majority of shareholders of the pertinent Fund. Unless otherwise
specified, other investment policies of any of the Funds may be changed by the
Board of Directors of that Fund without shareholder approval. Each Fund is
subject to investment restrictions that are described in that Fund's Statement
of Additional Information under 'Investment Restrictions.' Some of those
restrictions are designated as 'fundamental.' These fundamental restrictions as
well as the diversified status of each Fund require a vote of a majority of the
shareholders of the relevant Fund to be changed.

YEAR 2000 COMPLIANCE

Like other financial organizations, the Funds could be adversely affected if the
computer systems used by the Investment Manager and the Funds' other service
providers do not properly process and calculate date-related information after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Year
2000 Problem could have a negative impact on handling securities trades, payment
of interest and dividends, pricing, and account services. The Investment Manager
is taking steps that it believes are reasonably designed to address the Year
2000 Problem with respect to computer systems that it uses and to obtain
reasonable assurances that comparable steps are being taken by the Funds' other
major service providers. At this time, however, there can be no assurance that
these steps will be sufficient to avoid any adverse impact to the Funds nor can
there be any assurance that the Year 2000 Problem will not have an adverse
effect on the companies whose securities are held by the Funds or on global
markets or economies, generally.

<PAGE>

SHAREHOLDER GUIDE

Pilgrim America Purchase OptionsTM

Depending upon the Fund, you may select from two or three separate classes of
shares: Class A, Class B and Class M, each of which represents an identical
interest in a Fund's investment portfolio but are offered with different sales
charges and distribution fee (Rule 12b-1) arrangements. These sales charges and
fees are shown and contrasted in the chart below.

Class A Class B Class M(1)
<S> <C> <C> <C>

Maximum Initial Sales Charge on Purchases
Bank and Thrift Fund...................................... 5.75% (2) None N/A

MagnaCap Fund, MidCap Value Fund, LargeCapValue Fund,
Asia-Pacific Equity Fund................................. 5.75% (2) None 3.50%

Strategic Income Fund 4.75%(2) None N/A

High Yield Fund and Government Securities Income Fund..... 4.75% (2) None 3.25%
CDSC.......................................................... None (3) 5.00% (4) None
Annual Distribution Fees (5).................................. 0.25% (6) 1.00% 0.75%
Maximum Purchase.............................................. Unlimited $250,000 $1,000,000
Automatic Conversion to Class A............................... N/A 8 Years N/A

<FN>

(1) Bank and Thrift Fund and Strategic Income Fund do not offer Class M
shares.

(2) Imposed upon purchase. Reduced for purchases of $50,000 or more.

(3) For investments of $1 million or more, a CDSC of no more than 1% is
assessed on redemptions made within one or two years from purchase,
depending on the amount of purchase. See 'Class A Shares: Initial
Sales Charge Alternative.

(4) Imposed upon redemption within 6 years from purchase. Fee has
scheduled reductions after the first year. See 'Class B Shares:
Deferred Sales Charge Alternative.

(5) Annual asset-based distribution charge.

(6) MagnaCap Fund imposes an annual distribution fee of 0.30%.
</FN>
</TABLE>

When choosing between classes, investors should carefully consider the ongoing
annual expenses along with the initial sales charge or CDSC. The relative impact
of the initial sales charges and ongoing annual expenses will depend on the
length of time a share is held. Orders for Class B shares and Class M shares in
excess of $250,000 and $1,000,000, respectively, will be accepted as orders for
Class A shares or declined. You should discuss which Class of shares is right
for you with your Authorized Dealer.

Class A Shares: Initial Sales Charge Alternative. Class A shares of the Funds
are sold at the NAV per share in effect plus a sales charge as described in the
following table. For waivers or reductions of the Class A shares sales charges,
see 'Special Purchases without a Sales Charge' and 'Reduced Sales Charges.'

Bank and Thrift Fund, MagnaCap Fund, MidCap Value Fund,
LargeCap Value Fund and Asia-Pacific Equity Fund

<TABLE>
<CAPTION>
Dealers'
Reallowance
As a % of Offering As a % of as a % of
Amount of Transaction Price Per Share NAV Offering Price

<S> <C> <C> <C>
Less than $50,000..................................... 5.75% 6.10% 5.00%
$50,000 but less than $100,000........................ 4.50% 4.71% 3.75%
$100,000 but less than $250,000....................... 3.50% 3.63% 2.75%
$250,000 but less than $500,000....................... 2.50% 2.56% 2.00%
$500,000 but less than $1,000,000..................... 2.00% 2.04% 1.75%

</TABLE>

High Yield Fund, Strategic Income Fund
and Government Securities Income Fund
<TABLE>
<CAPTION>
Dealers'
Reallowance as
As a % of Offering As a % of a % of
Amount of Transaction Price Per Share NAV Offering Price
<S> <C> <C> <C>
Less than $50,000................................. 4.75% 4.99% 4.25%
$50,000 but less than $100,000.................... 4.50% 4.71% 4.00%
$100,000 but less than $250,000................... 3.50% 3.63% 3.00%
$250,000 but less than $500,000................... 2.50% 2.56% 2.25%
$500,000 but less than $1,000,000................. 2.00% 2.04% 1.75%

</TABLE>

There is no initial sales charge on purchases of $1,000,000 or more. However,
the Distributor will pay Authorized Dealers of record commissions at the rates
shown in the table below for investments subject to a CDSC. If shares are
redeemed within one or two years of purchase, depending on the amount of the
purchase, a CDSC will be imposed on certain redemptions as follows:

<TABLE>
<CAPTION>
Dealer Period During
On Purchases of: CDSC Allowance Which CDSC Applies
<S> <C> <C> <C>
$1,000,000 but less than $2,500,000..................................... 1.00% 1.00% 2 Years
$2,500,000 but less than $5,000,000..................................... 0.50% 0.50% 1 Year
$5,000,000 and over..................................................... 0.25% 0.25% 1 Year

</TABLE>

Class B Shares: Deferred Sales Charge Alternative. If you choose the deferred
sales charge alternative, you will purchase Class B shares at their NAV per
share without the imposition of a sales charge at the time of purchase. Class B
shares that are redeemed within six years of purchase, however, will be subject
to a CDSC as described in the table that follows. Class B shares of the Funds
are subject to a distribution fee at an annual rate of 1.00% of the average
daily net assets of the Class, which is higher than the distribution fees of
Class A or Class M shares. The higher distribution fees mean a higher expense
ratio, so Class B shares pay correspondingly lower dividends and may have a
lower NAV than Class A or Class M shares. In connection with sales of Class B
shares, the Distributor compensates Authorized Dealers at a rate of 4% of
purchase payments subject to a CDSC. Orders for Class B shares in excess of
$250,000 will be accepted as orders for Class A shares or declined.

The amount of the CDSC is determined as a percentage of the lesser of the NAV of
the Class B shares at the time of purchase or redemption. No charge will be
imposed for any net increase in the value of shares purchased during the
preceding six years in excess of the purchase price of such shares or for shares
acquired either by reinvestment of net investment income dividends or capital
gain distributions. The percentage used to calculate the CDSC will depend on the
number of years since you invested the dollar amount being redeemed according to
the following table:

Year of
Redemption
After Purchase CDSC

First........................................................... 5%
Second.......................................................... 4%
Third........................................................... 3%
Fourth.......................................................... 3%
Fifth........................................................... 2%
Sixth........................................................... 1%
Seventh and following........................................... 0%

To determine the CDSC payable on redemptions of Class B shares, the Funds will
first redeem shares in accounts that are not subject to a CDSC; second, shares
acquired through reinvestment of net investment income dividends and capital
gain distributions; third, shares purchased more than 6 years prior to
redemption; and fourth, shares subject to a CDSC in the order in which such
shares were purchased. Using this method, your sales charge, if any, will be at
the lowest possible rate.

Class B shares will automatically convert into Class A shares approximately
eight years after purchase. For additional information on the CDSC and the
conversion of Class B shares, see the Statement of Additional Information.

Class M Shares: Lower Initial Sales Charge Alternative. An investor who
purchases Class M shares pays a sales charge at the time of purchase that is
lower than the sales charge applicable to Class A shares and does not pay any
CDSC upon redemption. Class M shares have a higher annual distribution fee than
Class A shares, but lower than Class B. The higher distribution fees mean a
higher expense ratio than Class A but lower than Class B. Class M shares pay
correspondingly lower dividends and may have a lower NAV per share than Class A
shares, but generally pay higher dividends and have a higher NAV per share than
Class B shares. Orders for Class M shares in excess of $1,000,000 will be
accepted as orders for Class A shares or declined. The public offering price of
Class M shares is the NAV of each Fund plus a sales charge, which, as set forth
below, varies based on the size of the purchase:

MagnaCap Fund, MidCap Value Fund,
LargeCap Value Fund and Asia-Pacific Equity Fund
<TABLE>
<CAPTION>

Dealers'
Reallowance
As a % of Offering As a % of as a % of
Amount of Transaction Price Per Share NAV Offering Price
<S> <C> <C> <C>

Less than $50,000............................................... 3.50% 3.63% 3.00%
$50,000 but less than $100,000.................................. 2.50% 2.56% 2.00%
$100,000 but less than $250,000................................. 1.50% 1.52% 1.00%
$250,000 but less than $500,000................................. 1.00% 1.01% 1.00%
$500,000 and over............................................... None None None

</TABLE>

High Yield Fund and Government Securities Income Fund

<TABLE>
<CAPTION>
Dealers'
Reallowance
As a % of Offering As a % of as a % of
Amount of Transaction Price Per Share NAV Offering Price
<S> <C> <C> <C>

Less than $50,000............................................... 3.25% 3.36% 3.00%
$50,000 but less than $100,000.................................. 2.25% 2.30% 2.00%
$100,000 but less than $250,000................................. 1.50% 1.52% 1.25%
$250,000 but less than $500,000................................. 1.00% 1.01% 1.00%
$500,000 and over............................................... None None None

</TABLE>

Class M are not offered by Bank and Thrift Fund and Strategic Income Fund and do
not convert to Class A.

Reduced Sales Charges. An investor may immediately qualify for a reduced sales
charge on a purchase of Class A or Class M shares of a Fund or other open-end
funds in the Pilgrim America Funds which offer Class A shares, Class M Shares,
or shares with front-end sales charges ('Participating Funds') by completing the
Letter of Intent section of the Application. Executing the Letter of Intent
expresses an intention to invest during the next 13 months a specified amount,
which, if made at one time, would qualify for a reduced sales charge. An amount
equal to the Letter amount multiplied by the maximum sales charge imposed on
purchases of the applicable Fund and class will be restricted within your
account to cover additional sales charges that may be due if your actual total
investment fails to qualify for the reduced sales charges. See the New Account
Application or the Statement of Additional Information for details on the Letter
of Intent option or contact the Shareholder Servicing Agent at (800) 992-0180
for more information.

The sales charge for your investment may also be reduced by taking into account
the current value of your existing holdings in the Fund or any other open-end
funds in the Pilgrim America Funds (excluding Pilgrim America General Money
Market Shares) ('Rights of Accumulation'). The reduced sales charges apply to
quantity purchases made at one time or on a cumulative basis over any period of
time by: (i) an investor; (ii) the investor's spouse and children under the age
of majority; (iii) the investor's custodian account(s) for the benefit of a
child under the Uniform Gifts to Minors Act; (iv) a trustee or other fiduciary
of a single trust estate or a single fiduciary account (including a pension,
profit-sharing and other employee benefit plans qualified under Section 401 of
the Internal Revenue Code); and (v) by trust companies, registered investment
advisers, banks and bank trust departments for accounts over which they exercise
exclusive discretionary investment authority and which are held in a fiduciary,
agency, advisory, custodial or similar capacity. See the New Account Application
or the Statement of Additional Information for details or contact the
Shareholder Servicing Agent at (800) 992-0180 for more information.

For the purposes of Rights of Accumulation and the Letter of Intent Privilege,
shares held by investors in the Pilgrim America Funds which impose a CDSC may be
combined with Class A or Class M shares for a reduced sales charge but will not
affect any CDSC which may be imposed upon the redemption of shares of a Fund
which imposes a CDSC.

Waivers of CDSC. The CDSC on Class A or Class B shares will be waived in the
following cases. In determining whether a CDSC is applicable, it will be assumed
that shares held in the shareholder's account that are not subject to such
charge are redeemed first.

1) The CDSC on Class A or Class B shares will be waived in the case of
redemption following the death or permanent disability of a
shareholder if made within one year of death or initial
determination of permanent disability. The waiver is available for
total or partial redemptions of shares of each Fund owned by an
individual or an individual in joint tenancy (with rights of
survivorship), but only for those shares held at the time of death
or initial determination of permanent disability.

2) The CDSC also may be waived for Class B Shares redeemed pursuant to
a Systematic Withdrawal Plan, up to a maximum of 12% per year of a
shareholder's account value based on the value of the account at
the time the plan is established and annually thereafter, provided
all dividends and distributions are reinvested and the total
redemptions do not exceed 12% annually.

3) The CDSC also will be waived in the case of a total or partial
redemption of shares in a Fund in connection with any mandatory
distribution from a tax-deferred retirement plan or an IRA. The
shareholder must have attained the age of 70 1/2 to qualify for the
CDSC waiver relating to mandatory distributions. The waiver does
not apply in the case of a tax-free rollover or transfer of assets,
other than one following a separation of service. The shareholder
must notify the Transfer Agent either directly or through the
Distributor, at the time of redemption, that the shareholder is
entitled to a waiver of the CDSC. The CDSC Waiver Form included in
the New Account Application must be completed and provided to the
Transfer Agent at the time of the redemption request. The waiver
will be granted subject to confirmation of the grounds for the
waiver. The foregoing waivers may be changed at any time.

Reinstatement Privilege. Class B shareholders who have redeemed their shares in
any open-end Pilgrim America Fund within the previous 90 days may repurchase
Class B shares at NAV (at the time of reinstatement) in an amount up to the
redemption proceeds. Reinstated Class B shares will retain their original cost
and purchase date for purposes of the CDSC. The amount of any CDSC also will be
reinstated.

To exercise this privilege, a written order for the purchase of shares must be
received by the Transfer Agent or be postmarked within 90 days after the date of
redemption. This privilege can be used only once per calendar year. If a loss is
incurred on the redemption and the reinstatement privilege is used, some or all
of the loss may not be allowed as a tax deduction. See 'Tax Considerations' in
the Statement of Additional Information.

Special Purchase without a Sales Charge. Class A or Class M shares may be
purchased at NAV without a sales charge by:

1) Class A or Class M shareholders who have redeemed their shares in
any open-end Pilgrim America Fund within the previous 90 days.
These shareholders may repurchase shares at NAV in an amount
equal to their net redemption proceeds. Authorized Dealers who
handle these purchases may charge fees for this service.

2) Any person who can document that Fund shares were purchased with
proceeds from the redemption (within the previous 90 days) of
shares from any unaffiliated mutual fund on which a sales charge
was paid or which were subject at any time to a CDSC, and which
unaffiliated fund was: with respect to purchases of Bank and
Thrift Fund, a fund invested primarily in financial services
entities; with respect to purchases of MagnaCap Fund, a domestic
growth fund; with respect to purchases of the MidCap Value Fund,
a mid-cap fund; with respect to purchases of the LargeCap Value
Fund, a large-cap fund; with respect to purchases of the
Asia-Pacific Equity Fund, a fund investing in companies based in
the Asia-Pacific region; with respect to purchases of High Yield
Fund, a high yield bond fund; with respect to Strategic Income
Fund, a strategic income fund; and with respect to purchases of
Government Securities Income Fund, a government securities fund.

3) Any charitable organization or governmental entity that has
determined that a Fund is a legally permissible investment and
which is prohibited by applicable law from paying a sales charge
or commission in connection with the purchase of shares of any
mutual fund.

4) Officers, directors and full-time employees, and their families
of Pilgrim America Capital Corporation (Pilgrim America) and its
subsidiaries.

5) Certain fee based broker-dealers or registered representatives
thereof or registered investment advisers under certain
circumstances making investments on behalf of their clients.

6) Shareholders who have authorized the automatic transfer of
dividends from the same class of another Pilgrim America Fund
distributed by the Distributor or from Pilgrim America Prime Rate
Trust.

7) Registered investment advisors, trust companies and bank trust
departments investing in Class A shares on their own behalf or on
behalf of their clients, provided that the aggregate amount
invested in any Fund alone or in any combination of shares of any
Fund plus Class A shares of certain other Participating Funds as
described herein under 'Pilgrim America Purchase
Options(Trademark)--Reduced Sales Charges', during the 13 month
period commencing with the first investment pursuant hereto
equals at least $1 million. The Distributor may pay Authorized
Dealers through which purchases are made an amount up to 0.50% of
the amount invested, over a 12 month period following the
transaction.

8) Broker-dealers, who have signed selling group agreements with the
Distributor, and registered representatives and employees of such
broker-dealers, for their own accounts or for members of their
families (defined as current spouse, children, parents,
grandparents, uncles, aunts, siblings, nephews, nieces, step
relations, relations-at-law and cousins).

9) Broker-dealers using third party administrators for qualified
retirement plans who have entered into an agreement with the
Pilgrim America Funds or an affiliate, subject to certain
operational and minimum size requirements specified from
time-to-time by the Pilgrim America Funds.

10) Accounts as to which a banker or broker-dealer charges an account
management fee ('wrap accounts').

11) Any registered investment company for which PAII serves as
investment manager.

The Funds may terminate or amend the terms of offering shares at NAV to
these investors at any time. For additional information, contact the
Shareholder Servicing Agent at (800) 992-0180, or see the Statement of
Additional Information.

Incentives. The Distributor, at its expense, will provide additional promotional
incentives to Authorized Dealers in connection with sales of shares of the Funds
and other open-end Pilgrim America Funds. In some instances, additional
compensation or promotional incentives will be offered to Authorized Dealers
that have sold or may sell significant amounts of shares during specified
periods of time. Such compensation and incentives may include, but are not
limited to, cash, merchandise, trips and financial assistance in connection with
pre-approved conferences or seminars, sales or training programs for invited
sales personal, payment for travel expenses (including meals and lodging)
incurred by sales personnel to various locations for such seminars or training
programs, seminars for the public, advertising and sales campaigns regarding the
Funds or other open-end Pilgrim America Funds and/or other events sponsored by
Authorized Dealers. In addition, the Distributor may, at its own expense, pay
concessions in addition to those described above to dealers that satisfy certain
criteria established from time to time by the Distributor. These conditions
relate to increasing sales of shares of the Funds over specified periods and to
certain other factors. These payments may, depending on the dealer's
satisfaction of the required conditions, be periodic and may be up to (1) 0.30%
of the value of the Funds' shares sold by the dealer during a particular period,
and (2) 0.10% of the value of the Funds' shares held by the dealer's customers
for more than one year, calculated on an annual basis.

Rule 12b-1 Plan. Each Fund has a distribution plan pursuant to Rule 12b-1 under
the 1940 Act applicable to each class of shares of that Fund (Rule 12b-1 Plan).
Under the Rule 12b-1 Plan, the Distributor may receive from each Fund an annual
fee in connection with the offering, sale and shareholder servicing of the
Fund's Class A, Class B and Class M shares.

Distribution and Servicing Fees As compensation for services rendered and
expenses borne by the Distributor in connection with the distribution of
shares of the Funds and in connection with services rendered to
shareholders of each Fund, each Fund pays the Distributor servicing fees
and distribution fees up to the annual rates set forth below (calculated
as a percentage of each Fund's average daily net assets attributable to
that class):

Class A Shares
Servicing Distribution
Fund Fee Fee

Bank and Thrift Fund, MidCap
Value Fund, LargeCap Value Fund,
Asia-Pacific Equity Fund 0.25% n/a*

MagnaCap Fund 0.25% 0.05%

High Yield Fund,
Strategic Income Fund and
Government Securities Income Fund 0.25% n/a

*Subject to increase by action of the Fund's Directors to a rate not
exceeding .10% per annum.

Class B Shares
Servicing Distribution
Funds Fee Fee

All Funds 0.25% 0.75%

Class M Shares
Servicing Distribution
Fund Fee Fee

All Funds except Bank and Thrift
Fund and Strategic Income Fund 0.25% 0.50%*

*Subject to increase by action of the Fund's Directors to a rate not
exceeding 0.75% per annum.

Fees paid under the Rule 12b-1 Plan may be used to cover the expenses of the
Distributor from the sale of Class A, Class B or Class M shares of the Funds,
including payments to Authorized Dealers, and for shareholder servicing. These
fees may be used to pay the costs of the following: payments to Authorized
Dealers; promotional activities; preparation and distribution of advertising
materials and sales literature; expenses of organizing and conducting sales
seminars; personnel costs and overhead of the Distributor; printing of
prospectuses and statements of additional information (and supplements thereto)
and reports for other than existing shareholders; supplemental payments to
Authorized Dealers that provide shareholder services; interest on accrued
distribution expenses; and costs of administering the Rule 12b-1 Plan. No more
than 0.75% per annum of a Fund's average net assets may be used to finance
distribution expenses, exclusive of shareholder servicing payments, and no
Authorized Dealer may receive shareholder servicing payments in excess of 0.25%
per annum of a Fund's average net assets held by the Authorized Dealer's clients
or customers. With respect to Class A shares of MagnaCap Fund, High Yield Fund
and Government Securities Income Fund, the Distributor will be reimbursed for
its actual expenses incurred under the 12b-1 Plan. The Distributor has incurred
costs and expenses with respect to Class A shares that may be reimbursable in
future months or years in the amounts of $ __________ for MagnaCap Fund (0. __%
of its net assets), $ _________ for High Yield Fund (0.%__ of its net assets),
and $ _________ for Government Securities Income Fund ( ___% of its net assets)
as of June 30, 1998. With respect to Class A shares of all other Funds and the
Class B and Class M shares of each Fund, the Distributor will receive payment
without regard to actual distribution expenses that it incurs. Fees paid by one
of the Funds under the Rule 12b-1 Plan may be used to finance distribution of
the shares of that Fund and the servicing of shareholders of the Fund as well as
the other Pilgrim America Funds.

Under the Rule 12b-1 Plan, ongoing payments will be made on a quarterly basis to
Authorized Dealers for distribution and shareholder servicing as set forth
below.

Class A and B Shares
Servicing
Fund Fee

All Funds .25%

Class M Shares
Servicing Distribution
Fund Fee Fee
Magna Cap Fund, MidCap
Value Fund, LargeCap Value Fund,
Asia-Pacific Equity Fund .25% .40%

High Yield Fund and Government
Securities Income Fund .25% .15%

Payments are calculated as a percentage of the Fund's average daily NAV
attributed to each class of shares that are registered in the name of that
Authorized Dealer as nominee or held in a shareholder account that designates
that Authorized Dealer as the dealer of record. Rights to these ongoing payments
begin to accrue in the 13th month following a purchase of Class A or B shares
and on the anniversary date in the 1st month following the date of purchase of
Class M shares, and they cease upon exchange (or purchase) into Pilgrim America
General Money Market Shares. The payments are also subject to the continuation
of the relevant distribution plan, the terms of the service agreements between
dealers and the Distributor, and any applicable limits imposed by the National
Association of Securities Dealers, Inc.

Other Expenses. In addition to the management fee and other fees described
previously, each Fund pays other expenses, such as legal, audit, transfer agency
and custodian out-of-pocket fees, proxy solicitation costs, and the compensation
of Directors who are not affiliated with the Investment Manager. Most Fund
expenses are allocated proportionately among all of the outstanding shares of
that Fund. However, the Rule 12b-1 Plan fees for each class of shares are
charged proportionately only to the outstanding shares of that class.

Purchasing Shares

Your Authorized Dealer can help you establish and maintain your account, and the
Shareholder Servicing Agent is available to assist you with any questions you
may have.

The Fund reserves the right to liquidate sufficient shares to recover annual
Transfer Agent fees should the investor fail to maintain his/her account value
at a minimum of $1,000.00 ($250.00 for IRA's).

Method Initial Investment Additional Investment
<S> <C> <C>

By contacting your The minimum initial investment in a Fund is The minimum for additional investment in a
Authorized Dealer $1,000 ($250 for IRAs). Fund is $100.

By Mail Visit or consult an Authorized Dealer. Visit or consult your Authorized Dealer.
Make your check payable to the Pilgrim Fill out the Account Additions form
America Funds and mail it, along with a included on the bottom of your account
completed Application, to the address statement along with your check payable to
indicated on the Application. Please the Fund and mail them in the envelope
indicate an Authorized Dealer on the New provided with the account statement.
Account Application. Remember to write your account number on
the check.

By wire Call the Pilgrim America Operations Department Call the Pilgrim America Operations Dept.
at (800) 336-3436 to obtain an account at (800) 336-3436 to obtain a wire
number and indicate an Authorized Dealer on reference number. Give that number to your
the account. Instruct your bank to wire bank and have them wire the funds in the
funds to the Fund in care of: same manner described under 'Initial
Investors Fiduciary Trust Co. Investment.'
ABA #101003621
Kansas City, MO
credit to:
Pilgrim
(Fund)
A/C #751-8315; for further credit to:
Shareholder A/C
#

(A/C # you received over the telephone)
Shareholder Name:
(Your Name Here)

After wiring funds you must complete the
New Account Application and send it to:
Pilgrim America Funds.
P.O. Box 419368
Kansas City, MO 64141-6368

</TABLE>

The Funds and the Distributor reserve the right to reject any purchase order.
Please note third party checks, money orders and checks drawn on non-US banks
(even if payment may be effected through a US bank) will not be accepted. The
Investment Manager reserves the right to waive minimum investment amounts.

Price of Shares. Purchase, sale and exchange orders are effected at NAV for the
respective class of shares of each Fund, determined after the order is received
by the Transfer Agent or Distributor, plus any applicable sales charge (Public
Offering Price).

Purchases of each class of a Fund's shares are effected at that Fund's Public
Offering Price determined after a purchase order has been received in proper
form. A purchase order will be deemed to be in proper form when all of the
required steps set forth above under "Purchase of Shares" have been completed.
In the case of an investment by wire, however, the order will be deemed to be in
proper form after the telephone notification and the federal funds wire have
been received. A shareholder who purchases by wire must submit an application
form in a timely fashion. If an order or payment by wire is received after the
close regular trading on the New York Stock Exchange, (normally 4:00 p.m.
Eastern Time), the shares will not be credited until the next business day.

You will receive a confirmation of each new transaction in your account, which
also will show you the number of Fund shares you own including the number of
shares being held in safekeeping by the Transfer Agent for your account. You may
rely on these confirmations in lieu of certificates as evidence of your
ownership. Certificates representing shares of the Funds will not be issued
unless you request them in writing.

Determination of Net Asset Value. The NAV of each class of each Fund's shares
will be determined daily as of the close of regular trading on the New York
Stock Exchange (usually at 4:00 p.m. New York City time) on each day that it is
open for business. Each class' NAV represents that class' pro rata share of that
Fund's net assets as adjusted for any class specific expenses (such as fees
under a Rule 12b-1 plan), and divided by that class' outstanding shares. In
general, the value of each Fund's assets is based on actual or estimated market
value, with special provisions for assets not having readily available market
quotations and short-term debt securities. The NAV per share of each class of
each Fund will fluctuate in response to changes in market conditions and other
factors. Portfolio securities for which market quotations are readily available
are stated at market value. Short-term debt securities having a maturity of 60
days or less are valued at amortized cost, unless the amortized cost does not
approximate market value. Securities prices may be obtained from automated
pricing services. In other cases, securities are valued at their fair value as
determined in good faith by the Board of Directors, although the actual
calculations will be made by persons acting under the supervision of the Board.
For information on valuing foreign securities, see each Fund's Statement of
Additional Information.

Pre-Authorized Investment Plan. You may establish a pre-authorized investment
plan to purchase shares with automatic bank account debiting. For further
information on pre-authorized investment plans, see the New Account Application
or contact the Shareholder Servicing Agent at (800) 992-1080.

Retirement Plans. The Funds have available prototype qualified retirement plans
for both corporations and for self-employed individuals. They also have
available prototype IRA and Simple IRA plans (for both individuals and
employers), Simplified Employee Pension Plans, Pension and Profit Sharing Plans
and Tax Sheltered Retirement Plans for employees of public educational
institutions and certain non-profit, tax-exempt organizations. Investors
Fiduciary Trust Company ('IFTC') acts as the custodian under these plans. For
further information, contact the Shareholder Servicing Agent at (800) 992-1080.
IFTC currently receives a $12 custodian fee annually for the maintenance of such
accounts.

Telephone Orders. The Funds and their Transfer Agent will not be responsible for
the authenticity of phone instructions or losses, if any, resulting from
unauthorized shareholder transactions if they reasonably believe that such
instructions were genuine. The Funds and their Transfer Agent have established
reasonable procedures to confirm that instructions communicated by telephone are
genuine. These procedures include: (i) recording telephone instructions for
exchanges and expedited redemptions; (ii) requiring the caller to give certain
specific identifying information; and (iii) providing written confirmation to
shareholders of record not later than five days following any such telephone
transactions. If the Funds and their Transfer Agent do not employ these
procedures, they may be liable for any losses due to unauthorized or fraudulent
telephone instructions. Telephone redemptions may be executed on all accounts
other than retirement accounts.

Exchange Privileges and Restrictions. An exchange privilege is available.
Exchange requests may be made in writing to the Transfer Agent or by calling the
Transfer Agent at (800) 992-0180. There is no specific limit on exchange
frequency; however, the Funds are intended for long term investment and not as a
trading vehicle. The Investment Manager reserves the right to prohibit excessive
exchanges (more than four per year). The Investment Manager reserves the right,
upon 60 days' prior notice, to restrict the frequency of, otherwise modify, or
impose charges of up to $5.00 upon exchanges. The total value of shares being
exchanged must at least equal the minimum investment requirement of the fund
into which they are being exchanged.

Shares of one class of a Fund may be exchanged for shares of that same class of
any other open-end Pilgrim America Fund other than Pilgrim America General Money
Market Shares ('Money Market'), at NAV without payment of any additional sales
charge. If you exchange and subsequently redeem your shares, any applicable CDSC
will be based on the full period of the share ownership. Shares of a Fund that
are not subject to a CDSC may be exchanged for shares of Money Market, and
shares of Money Market acquired in the exchange may subsequently be exchanged
for shares of an open-end Pilgrim America Fund of the same class as the original
shares acquired. Shares of a Fund that are subject to a CDSC may be redeemed to
purchase shares of Money Market upon payment of the CDSC. Shareholders
exercising the exchange privilege with any other open-end Pilgrim America Funds
should carefully review the prospectus of that fund. Exchanges of shares are
sales and may result in a gain or loss for federal and state income tax
purposes. You will automatically be assigned the telephone exchange privilege
unless you mark the box on the New Account Application that signifies you do not
wish to have this privilege. The exchange privilege is only available in states
where shares of the fund being acquired may be legally sold.

Systematic Exchange Privilege. With an initial account balance of at least
$5,000 and subject to the information and limitations outlined above, you may
elect to have a specified dollar amount of shares systematically exchanged,
monthly, quarterly, semi-annually or annually (on or about the 10th of the
applicable month), from your account to an identically registered account in the
same class of any other open-end Pilgrim America Fund. The exchange privilege
may be modified at any time or terminated upon 60 days written notice to
shareholders.

How to Redeem Shares

Shares of each Fund will be redeemed at the NAV (less any applicable CDSC and/or
federal income tax withholding) next determined after receipt of a redemption
request in good form on any day the New York Stock Exchange is open for
business.

Method Procedures
<S> <C>

Redemption By Contacting Your Authorized Dealers may communicate redemption
Authorized Dealer orders by wire or telephone to the Distributor. These
firms may charge for their services in connection with your redemption
request, but neither the Funds nor the Distributor imposes any such charge.

Redemption By Mail A written request for redemption must be received by the Transfer Agent in order
to constitute a valid tender. If certificated shares have been issued, the
certificate must accompany the written request. The Transfer Agent may also
require a signature guarantee by an eligible guarantor. It will also be necessary
for corporate investors and other associations to have an appropriate
certification on file authorizing redemptions by a corporation or an association
before a redemption request will be considered in proper form. A suggested form
of such certification is provided on the New Account Application. If you are
entitled to a CDSC waiver, you must complete the CDSC waiver form in the New
Account Application. To determine whether a signature guarantee or other
documentation is required, shareholders may call the Shareholder Servicing Agent
at (800) 992-1080.

Expedited Redemption The Expedited Redemption privilege allows you to effect a liquidation from your
account via a telephone call and have the proceeds (maximum $100,000) mailed to an
address which has been on record with the Pilgrim America Funds for at least 30
days. This privilege is automatically assigned to you unless you check the box on
the New Account Application which signifies that you do not wish to utilize such
option. The Expedited Redemption Privilege additionally allows you to effect a
liquidation from your account and have the proceeds (minimum $5,000) wired to
your pre-designated bank account. But, this aspect of the Expedited Redemption
privilege will NOT automatically be assigned to you. If you want to take
advantage of this aspect of the privilege, please check the appropriate box and
attach a voided check to the New Account Application. Under normal circumstances,
proceeds will be transmitted to your bank on the second business day following
receipt of your instructions, provided redemptions may be made. To effect an
Expedited Redemption, please call the Transfer Agent at (800) 992-0180 and select
option 3. In the event that share certificates have been issued, you may not
request a wire redemption by telephone or wire. This option is not available for
retirement accounts.

</TABLE>

Systematic Withdrawal Plan. You may elect to have monthly, quarterly,
semi-annual or annual payments in any fixed amount in excess of $100 made to
yourself, or to anyone else you properly designate, as long as the account has a
current value of at least $10,000. During the withdrawal period, you may
purchase additional shares for deposit to your account if the additional
purchases are equal to at least one year's scheduled withdrawals, or $1,200
whichever is greater. There are no separate charges to you under this Plan,
although a CDSC may apply if you purchased Class A or B shares.

The number of full and fractional shares equal in value to the amount of the
payment will be redeemed at NAV (less any applicable CDSC). Such redemptions are
normally processed on the fifth day prior to the end of the month, quarter or
year. Checks are then mailed or proceeds are forwarded to your bank account on
or about the first of the following month. Shareholders who elect to have a
systematic cash withdrawal must have all dividends and capital gains reinvested.
To establish a systematic cash withdrawal, please complete the Systematic
Withdrawal Plan section of the New Account Application. To have funds deposited
to your bank account, follow the instructions on the New Account Application.

You may change the amount, frequency and payee, or terminate this plan by giving
written notice to the Transfer Agent. As shares of a Fund are redeemed under the
Plan, you may realize a capital gain or loss for income tax purposes. A
Systematic Withdrawal Plan may be modified at any time by the Fund or terminated
upon written notice by you or the relevant Fund.

Payments. Payment to shareholders for shares redeemed or repurchased ordinarily
will be made within seven days after receipt by the Transfer Agent of a written
request in good order. A Fund may delay the mailing of a redemption check until
the check used to purchase the shares being redeemed has cleared which may take
up to 15 days or more. To reduce such delay, all purchases should be made by
bank wire or federal funds. A Fund may suspend the right of redemption under
certain extraordinary circumstances in accordance with the Rules of the
Securities and Exchange Commission. Due to the relatively high cost of handling
small investments, the Funds reserve the right upon 30 days written notice to
redeem, at NAV, the shares of any shareholder whose account (except for IRAs)
has a value of less than $1,000, other than as a result of a decline in the NAV
per share. Each Fund intends to pay in cash for all shares redeemed, but under
abnormal conditions that make payment in cash unwise, a Fund may make payment
wholly or partly in securities at their then current market value equal to the
redemption price. In such case, a Fund could elect to make payment in securities
for redemptions in excess of $250,000 or 1% of its net assets during any 90-day
period for any one shareholder. An investor may incur brokerage costs in
converting such securities to cash.

MANAGEMENT OF THE FUNDS

More about the Funds. Bank and Thrift Fund is the single series of Pilgrim
America Bank and Thrift Fund, Inc., which is a registered investment company
that was incorporated in Maryland in November, 1985 as a closed-end, diversified
management investment company. The Fund operated as a closed-end fund prior to
October 17, 1997. On October 16, 1997, shareholders approved open-ending the
Fund and since October 17, 1997, the Fund has operated as an open-end fund.

MagnaCap Fund and High Yield Fund are series of Pilgrim America Investment
Funds, Inc., which is a registered investment company that was organized as a
Maryland corporation in July 1969.

MidCap Value Fund, LargeCap Value Fund, Asia-Pacific Equity Fund and Strategic
Income Fund are series of Pilgrim America Advisory Funds, Inc., which is a
registered investment company that was organized as a Maryland corporation in
April, 1995.

Government Securities Income Fund is the single series of Pilgrim Government
Securities Income Fund, Inc., which is a registered investment company that was
organized as a California corporation in May 1984.

Each Fund is governed by its Board of Directors, which oversees the operations
of the Fund. The majority of Directors are not affiliated with the Investment
Manager.

Investment Manager. The Investment Manager has overall responsibility for the
management of the Funds. Each Fund and the Investment Manager have entered into
an agreement that requires the Investment Manager to provide or oversee all
investment advisory and portfolio management services for the Fund. Each
agreement also requires the Investment Manager to assist in managing and
supervising all aspects of the general day-to-day business activities and
operations of the Funds, including custodial, transfer agency, dividend
disbursing, accounting, auditing, compliance and related services. The
Investment Manager provides the Funds with office space, equipment and personnel
necessary to administer the Funds. Each agreement with the Investment Manager
can be canceled by the Board of Directors of each Fund upon 60 days written
notice. Organized in December 1994, the Investment Manager is registered as an
investment adviser with the Securities and Exchange Commission. The Investment
Manager acquired certain assets of the previous adviser to the Funds in a
transaction that closed on April 7, 1995.

The Investment Manager and Pilgrim America Securities, Inc. (Distributor), the
Funds' principal underwriter, are indirect, wholly owned subsidiaries of Pilgrim
America Capital Corporation (NASDAQ: PACC). Through its subsidiaries, Pilgrim
America Capital Corporation engages in the financial services business, focusing
on providing investment advisory, administrative and distribution services to
open-end and closed-end investment companies and private accounts. For more
information on Pilgrim America Capital Corporation please see the Statement of
Additional Information.

The Investment Manager bears its expenses of providing the services described
above. Bank and Thrift Fund pays the Investment Manager a fee at an annual rate
of 1.00% of the first $30,000,000 of average daily net assets, 0.75% of the next
$95,000,000 of average daily net assets, and 0.70% of average daily net assets
in excess of $125,000,000. These fees are computed and accrued daily and paid
monthly.

MagnaCap Fund pays the Investment Manager a fee at an annual rate of 1.00% of
the average daily net assets of the Fund up to $30 million; 0.75% of the average
daily net assets above $30 million to $250 million; 0.625% of the average daily
net assets above $250 million to $500 million; and 0.50% of the average daily
net assets in excess of $500 million.

High Yield Fund and Strategic Income Fund each pay the Investment Manager a fee
at an annual rate of 0.60% of the average daily net assets of the Fund. LargeCap
Value Fund and MidCap Value Fund each pay the Investment Manager a fee at an
annual rate of 1.00% of the Fund's average daily net assets, and the
Asia-Pacific Fund pay the Investment Manager a fee at an annual rate of 1.25% of
the Fund's average daily net assets.

Government Securities Income Fund pays the Investment Manager a fee at an annual
rate of 0.50% of the average daily net assets of the Fund up to $500 million;
0.45% of the average daily net assets above $500 million to $1 billion; and
0.40% of the average daily net assets in excess of $1 billion. The agreement
with the Investment Manager for the Government Securities Income Fund provides
that the Investment Manager will reimburse the Government Securities Income Fund
to the extent that the gross operating costs and expenses of that Fund,
excluding any interest, taxes, brokerage commissions, amortization of
organizational expenses, extraordinary expenses, and distribution (Rule 12b-1)
fees on Class B and Class M shares in excess of an annual rate of 0.25% of the
average daily net assets of these classes, exceed 1.50% of the Fund's average
daily net asset value for the first $40 million of net assets and 1.00% of
average daily net assets in excess of $40 million for any one fiscal year. This
reimbursement policy cannot be changed unless the agreement is amended, which
would require shareholder approval.

The Investment Manager has entered into expense limitation agreements with
respect to certain of the Funds, pursuant to which the Investment Manager has
agreed to waive or limit its fees and to assume other expenses so that the total
annual ordinary operating expenses of these Funds (which excludes interest,
taxes, brokerage commissions, extraordinary expenses such as litigation, other
expenses not incurred in the ordinary course of such Fund's business, expenses
of any counsel or other persons or services retained by the Company's directors
who are not "interested persons" (as defined in the 1940 Act) of the Investment
Manager, and amounts payable pursuant to a plan adopted in accordance with Rule
12b-1 under the 1940 Act) do not exceed: 0.75% for High Yield Fund and Strategic
Income Fund; 1.50% for LargeCap Value Fund and MidCap Value Fund; and 1.75% for
Asia-Pacific Equity Fund.

The expense limitation agreements provide that these expense limitations shall
continue until December 31, 1998 for High Yield Fund, LargeCap Value Fund,
MidCap Value Fund and Asia-Pacific Equity Fund, and until December 31, 1999 for
Strategic Income Fund. The Investment Manager may extend, but may not shorten,
the period of these limitations without the consent of the Funds, so long as the
extension is at the same expense limitation amount discussed above. Each Fund
described above will at a later date reimburse the Investment Manager for
management fees waived and other expenses assumed by the Investment Manager
during the previous 36 months, but only if, after such reimbursement, the Fund's
expense ratio does not exceed the percentage described above. The Investment
Manager will only be reimbursed for fees waived or expenses assumed after the
effective date of the expense limitation agreements. Each expense limitation
agreement will terminate automatically upon termination of the respective
investment management agreement with the Investment Manager, and may be
terminated by the Investment Manager or the Fund upon 90 days written notice.

The Portfolio Managers. For Asia-Pacific Equity Fund and MidCap Value Fund, the
Investment Manager has engaged two of the most respected institutional
investment advisers in the world. For portfolios similar to these Funds, these
firms usually require large investment minimums to open an account, and their
services for these types of portfolios are typically available only to wealthy
individuals and large institutional clients. The Portfolio Managers have been
selected primarily on the basis of their successful application of a consistent,
well-defined, long-term investment approach over a period of several market
cycles.

Asia-Pacific Equity Fund. HSBC Asset Management Americas Inc. and HSBC Asset
Management Hong Kong Limited (collectively, HSBC) serve jointly as Portfolio
Manager to the Asia-Pacific Equity Fund. The firms are part of HSBC Asset
Management, the global investment advisory and fund management business unit of
HSBC Holdings plc (founded as the Hong Kong and Shanghai Banking Corporation in
1865) which, with headquarters in London, is one of the world's largest banking
and financial organizations. HSBC Asset Management manages over approximately
$49 billion of assets worldwide for a wide variety of institutional, retail and
private clients, with a minimum investment size for private accounts of $10
million for Asia-Pacific investors. HSBC Asset Management has advisory
operations in Hong Kong and Singapore, among other locations. Its parent company
has over a century of operations in local economies throughout the Asia-Pacific
region.

Fredric Lutcher III, Managing Director, Chief Financial Officer, HSBC Americas,
Ian Burden, Chief Investment Officer, HSBC Hong Kong, and Man Wing Chung,
Director, HSBC Hong Kong, are primarily responsible for portfolio management of
Asia-Pacific Equity Fund. Mr. Lutcher joined HSBC in 1997, and has over 20 years
of investment experience. Prior to joining HSBC, Mr. Lutcher was with Merrill
Lynch Asset Management. Mr. Burden has been with HSBC for 17 years, and has 24
years investment experience. Mr. Chung has been with HSBC for 5 years, and has
10 years investment experience.

MidCap Value Fund. Cramer Rosenthal McGlynn, LLC. (CRM) serves as Portfolio
Manager to the MidCap Value Fund. CRM's predecessor was founded in 1973 to
manage portfolios for a select number of high net worth individuals and their
related foundations, endowment funds, pension plans and other entities, and CRM
currently manages approximately $4 billion for more than 200 individual and
institutional clients, with a minimum investment size for private accounts of $5
million. The three founding principals of CRM have each spent over 35 years in
the investment business. The firm has managed investments in small and middle
capitalization companies for __ years. Accounts managed by Cramer Rosenthal own
in the aggregate approximately ____% of the outstanding voting securities of
Pilgrim America.

Gerald B. Cramer, Chairman of CRM, Edward D. Rosenthal, Vice Chairman of CRM,
Ronald H. McGlynn, Manager, President and Chief Executive Officer of CRM, Jay B.
Abramson, Executive Vice President and Director of Research of CRM, and Michael
Prober, Portfolio Manager and Research Analyst, are primarily responsible for
portfolio management of MidCap Value Fund. Messrs. Cramer, Rosenthal and McGlynn
founded CRM's predecessor in 1973. Mr. Abramson has been with CRM or its
predecessor for 13 years. Mr. Prober has been with CRM for 6 years.

Each Portfolio Manager serves the pertinent Fund under an agreement with the
Investment Manager. Each Portfolio Manager has discretion to purchase and sell
securities for the portfolio of its respective Fund in accordance with that
Fund's objectives, policies and restrictions. Although the Portfolio Managers
are subject to the general supervision by the Board of Directors and the
Investment Manager, the Board and/or the Investment Manager do not evaluate the
investment merits of specific securities transactions. The agreement with each
Portfolio Manager may be terminated by the Board of Directors of the Funds, by
the Investment Manager or by the Portfolio Manager. Thus, it is possible that in
the future, one or more of the current Portfolio Managers would no longer be
engaged for a Fund. It is not anticipated that Portfolio Managers will be
replaced in the ordinary course of operations.

As compensation for their services to the Funds, the Investment Manager (and not
the Fund) pays HSBC and CRM fees at annual rates of 0.50% of the average daily
net assets of the Asia-Pacific Equity and MidCap Value Funds, respectively.

Investment Personnel.

Howard N. Kornblue, Senior Vice President, Head of Equity and Senior Portfolio
Manager for the Investment Manager. Mr. Kornblue is a co-manager of MagnaCap
Fund and has served as a portfolio manager of MagnaCap Fund since 1989. Prior to
joining Pilgrim America Group (and its predecessor) in 1986, Mr. Kornblue was
Vice President, Director of Research and Portfolio Manager at First Wilshire
Securities Management; supervised mergers and acquisitions for Getty Oil
Company; was portfolio manager and research analyst in both the fixed-income and
equity departments for Western Asset Management Company; and was research
analyst and pension fund manager at Southern California Edison Company. Mr.
Kornblue received a B.S. from U.C.L.A., and M.S. and M.B.A. from U.S.C.

Carl Dorf, C.F.A., Senior Vice President and Senior Portfolio Manager of Bank
and Thrift Fund has been managing the Fund's portfolio since January 1991, when
he joined the Investment Manager's predecessor. Mr. Dorf is also a Senior Vice
President of the Investment Manager. Prior to joining the Investment Manager's
predecessor, he was a principal of Dorf & Associates Investment Counsel. His 30
plus years of portfolio management and research experience include positions
with Moody's Investors Service, Inc., as an analyst in the Banking & Finance
Department; with Nuveen Corp. as a financial securities analyst; with Loews
Corp. as a fund manager with responsibility for $150 to $250 million in utility
and financial stocks; with BA Investment Management Corp. as a senior financial
stock analyst; and with RNC Capital Management as manager of 150 individual,
pension, and profit-sharing accounts. A Chartered Financial Analyst, Mr. Dorf
earned both BBA/Finance and Investments and MBA/Finance and Investments degrees
from the Bernard Baruch School of Business and Public Administration, The City
College of New York.

G. David Underwood, Vice President, Director of Research and Senior Portfolio
Manager for the Investment Manager, is a co-manager of MagnaCap Fund and
Portfolio Manager of LargeCap Value Fund. Prior to joining the Investment
Manager in December, 1996, Mr. Underwood served as Director of Funds Management
for First Interstate Capital Management. Mr. Underwood's prior experience
includes a 10 year association with Integra Trust Company of Pittsburgh where he
served as Director of Research and Senior Portfolio Manager and two years with
C.S. McKee Investment Advisors as a Portfolio Manager. A Chartered Financial
Analyst and past president of the Pittsburgh Society of Financial Analysts, Mr.
Underwood received his B.S. degree from Arizona State University and has done
graduate work in economics and finance at Washington and Jefferson College. He
is a graduate of Pennsylvania Bankers Trust School.

Jeffery B. Cross, Vice President of the Investment Manager, is a co-manager of
MagnaCap Fund. Mr. Cross joined Pilgrim America in August 1997 from Delta
Ventures Financial Council, Inc., where he was in charge of equity analysis.
Prior to joining Delta Ventures in 1991, he was executive vice president of a
manufacturing engineer consulting firm. Mr. Cross began his business career in
the 1970's working as a junior equity analyst for John Cross & Associates, an
SEC-registered investment advisor in Cincinnati, Ohio. He is an advisory
director of the CAD Institute. Mr. Cross has three Magna Cum Laude Bachelor of
Science degrees from Miami University, Oxford, Ohio, in Chemistry, Physics, and
Mathematics. He has a masters degree from Stanford University and has done
post-graduate work in business and chemical engineering at Arizona State
University.

Howard Tiffen, Senior Vice President and Senior Portfolio Manager of the
Investment Manager, serves as a co-manager of Strategic Income Fund. He is also
the President, Chief Operating Officer and Senior Portfolio Manager of Pilgrim
America Prime Rate Trust, another fund managed by the Investment Manager. He has
had primary responsibility for investment management of various divisions of
Bank of America (and its predecessor, Continental Bank).

Kevin G. Mathews, Senior Vice President and Senior Portfolio Manager of the
Investment Manager, has served as Portfolio Manager of High Yield Fund since
June 1995 serves as the Allocation Manager for Strategic Income Fund and also
served as Portfolio Manager of Government Securities Income Fund from June 1995
through September 1996. Prior to joining the Investment Manager, Mr. Mathews was
a Vice President and Senior Portfolio Manager with Van Kampen American Capital.
Since 1987, Mr. Mathews' responsibilities included the management of open-end
high yield bond funds, two New York Stock Exchange listed closed-end bond funds,
variable annuity high yield products and individual institutional high yield
asset managed accounts. In a prior position, Mr. Mathews was a high yield
portfolio fixed income credit analyst. Mr. Mathews received a B.A. from the
University of Illinois and an M.B.A. from Drake University.

Charles G. Ullerich, Vice President of the Investment Manager, has served as
Portfolio Manager of Government Securities Income Fund since September 1996 and
served as Assistant Portfolio Manager of that Fund from August 1995 to September
1996. Mr. Ullerich also serves as co-manager of Strategic Income Fund. Prior to
joining Pilgrim America Group, Mr. Ullerich was Vice President of Treasury
Services for First Liberty Bank of Macon, GA, where he was Portfolio Manager for
a conservatively-managed $150 million mortgage and treasury securities
portfolio, since 1991. Before that, he was an internal auditor for Georgia
Federal Bank in Atlanta. Mr. Ullerich received a B.S. from Arizona State
University, and he holds the professional designations of Chartered Financial
Analyst and Certified Internal Auditor. He is Past President of the Georgia
Chapter of the Arizona State University Alumni Association.

Distributor. In addition to providing for the expenses discussed above, the Rule
12b-1 Plan also recognizes that the Investment Manager may use its investment
management fees or other resources to pay expenses associated with activities
primarily intended to result in the promotion and distribution of the Funds'
shares. The Distributor will, from time to time, pay to Authorized Dealers in
connection with the sale or distribution of shares of a Fund material
compensation in the form of merchandise or trips. Salespersons and any other
person entitled to receive any compensation for selling or servicing Fund shares
may receive different compensation with respect to one particular class of
shares over another in a Fund.

Shareholder Servicing Agent. Pilgrim America Group, Inc. serves as Shareholder
Servicing Agent for the Funds. The Shareholder Servicing Agent is responsible
for responding to written and telephonic inquiries from shareholders. Each Fund
pays the Shareholder Servicing Agent a monthly fee on a per-contact basis, based
upon incoming and outgoing telephonic and written correspondence.

Portfolio Transactions. The Investment Manager, or Portfolio Manager in the case
of MidCap Value Fund and Asia-Pacific Equity Fund, will place orders to execute
securities transactions that are designed to implement each Fund's investment
objectives and policies. The Investment Manager, or Portfolio Manager, will use
its reasonable efforts to place all purchase and sale transactions with brokers,
dealers and banks ('brokers') that provide 'best execution' of these orders. In
placing purchase and sale transactions, the Investment Manager, or Portfolio
Managers, may consider brokerage and research services provided by a broker to
Portfolio Manager or the Investment Manager or their affiliates, and a Fund may
pay a commission for effecting a securities transaction that is in excess of the
amount another broker would have charged if the Investment Manager or Portfolio
Manager determines in good faith that the amount of commission is reasonable in
relation to the value of the brokerage and research services provided by the
broker. Consistent with this policy, portfolio transactions may be executed by
brokers affiliated with a Portfolio Manager or the Investment Manager, so long
as the commission paid to the affiliated broker is reasonable and fair compared
to the commission that would be charged by an unaffiliated broker in a
comparable transaction. In addition, the Investment Manager or Portfolio Manager
may place securities transactions with brokers that provide certain services to
a Fund. The Investment Manager or Portfolio Manager also may consider a broker's
sale of Fund shares if the Investment Manager is satisfied that the Fund would
receive best execution of the transaction from that broker.

DIVIDENDS, DISTRIBUTIONS & TAXES

Dividends and Distributions. In the case of Bank and Thrift Fund, MidCap Value
Fund, LargeCap Value Fund, and Asia-Pacific Equity Fund, dividends and
distributions from net investment income and capital gains, if any, will be paid
at least annually. MagnaCap Fund makes semi-annual payments from net investment
income and one or more payments from net realized capital gains, if any. High
Yield Fund, Strategic Income Fund and Government Securities Income Fund each
have a policy of paying monthly dividends from their net investment income, and
paying capital gains, if any, annually. Dividends and distributions will be
determined on a class basis.

Any dividends and distributions paid by a Fund will be automatically reinvested
in additional shares of the respective class of that Fund, unless you elect to
receive distributions in cash. When a dividend or distribution is paid, the NAV
per share is reduced by the amount of the payment.

You may, upon written request or by completing the appropriate section of the
New Account Application in this Prospectus, elect to have all dividends and
other distributions paid on a Class A, B or M account in a Fund invested into a
Pilgrim America Fund which offers Class A, B or M shares. Both accounts must be
of the same class. If you are a shareholder of Pilgrim America Prime Rate Trust,
whose shares are not held in a broker or nominee account, you may, upon written
request, elect to have all dividends invested into a pre-existing Class A
account of any open-end Pilgrim America Fund which offers Class A, B, or M
shares. Distributions are invested into the selected funds at the net asset
value as of the payable date of the distribution only if shares of such selected
funds have been registered for sale in the investor's state.

Federal Taxes. Each Fund intends to operate as a 'regulated investment company'
under the Internal Revenue Code. To qualify, a Fund must meet certain income,
asset diversification and distribution requirements. In any fiscal year in which
a Fund so qualifies and distributes to shareholders all of its taxable income,
the Fund itself generally is relieved of federal income and excise taxes.

Dividends paid out of a Fund's investment company taxable income (including
dividends, interest and short-term capital gains) will be taxable to a U.S.
shareholder as ordinary income. If a portion of a Fund's income consists of
dividends paid by U.S. corporations, a portion of the dividends paid by the Fund
may be eligible for the corporate dividends-received deduction. The Funds expect
that distributions of net capital gains (the excess of net long-term capital
gains over net short-term capital losses), if any, designated as capital gain
dividends should be taxable as long-term capital gains, regardless of how long
the shareholder has held the Fund's shares, but the rate of tax will depend on
the Fund's holding period for the assets whose sale results in the gain.

All dividends and capital gains are taxable whether they are reinvested or
received in cash, unless you are exempt from taxation or entitled to tax
deferral. Early each year, you will be notified as to the amount and federal tax
status of all dividends and capital gains paid during the prior year. Such
dividends and capital gains may also be subject to state or local taxes.
Dividends declared in October, November, or December with a record date in such
month and paid during the following January will be treated as having been paid
by a Fund and received by shareholders on December 31 of the calendar year in
which declared, rather than the calendar year in which the dividends are
actually received.

Upon the sale or other disposition of shares of a Fund, a shareholder may
realize a gain or loss which will be a capital gain or loss if the shares are
held as a capital asset and, if so, may be eligible for reduced federal tax
rates, depending on the shareholder's holding period for the shares.

If you have not furnished a certified correct taxpayer identification number
(generally your Social Security number) and have not certified that withholding
does not apply, or if the Internal Revenue Service has notified the Fund that
the taxpayer identification number listed on your account is incorrect according
to their records or that you are subject to backup withholding, federal law
generally requires the Fund to withhold 31% from any dividends and/or
redemptions (including exchange redemptions). Amounts withheld are applied to
your federal tax liability; a refund may be obtained from the Service if
withholding results in overpayment of taxes. Federal law also requires the Fund
to withhold 30% or the applicable tax treaty rate from ordinary dividends paid
to certain nonresident alien, non-U.S. partnership and non-U.S. corporation
shareholder accounts.

Asia-Pacific Equity Fund may be required to pay withholding and other taxes
imposed by various countries in connection with its investments outside the U.S.
generally at rates from 10% to 40%, which would reduce a Fund's investment
income.

This is a brief summary of some of the tax laws that affect your investment in a
Fund. Please see the Statement of Additional Information and your tax adviser
for further information.

PERFORMANCE INFORMATION

From time to time, a Fund may advertise its average annual total return over
various periods of time as well as the Fund's current yield. The total return
figures show the average percentage change in value of an investment in the Fund
from the beginning date of the measuring period. The figures reflect changes in
the price of the Fund's shares and assume that any income dividends and/or
capital gains distributions made by the Fund during the period were reinvested
in shares of the Fund. Figures will be given for one, five and ten year periods
(if applicable) and may be given for other periods as well (such as from
commencement of the Fund's operations, or on a year-by-year basis). Total
returns and current yield are based on past results and are not necessarily a
prediction of future performance. The Fund will compute its yield by dividing
its net investment income per share during a 30-day base period by the maximum
offering price on the last day of the base period. This 30-day yield is then
compounded over six monthly periods and multiplied by two to provide an
annualized yield.

A Fund may also publish a distribution rate in investor communications preceded
or accompanied by a copy of the current Prospectus. The current distribution
rate for a Fund is the annualization of the Fund's distribution per share
divided by the maximum offering price per share of a Fund at the respective
month-end. The current distribution rate may differ from current yield because
the distribution rate may contain items of capital gain and other items of
income, while yield reflects only earned net investment income. In each case,
the yield, distribution rates and total return figures will reflect all
recurring charges against Fund income and will assume the payment of the maximum
sales load.

Additional Performance Quotations. Advertisements of total return will always
show a calculation that includes the effect of the maximum sales charge but may
also show total return without giving effect to that charge. Because these
additional quotations will not reflect the maximum sales charge payable, these
performance quotations will be higher than the performance quotations that
reflect the maximum sales charge.

ADDITIONAL INFORMATION

More about the Funds. Each Fund's Articles of Incorporation permit the Directors
to authorize the creation of additional series, each of which may issue separate
classes of shares. A Fund may be terminated and liquidated under certain
circumstances.

Shareholders have certain voting rights. Each share of each Fund is given one
vote. Matters such as approval of new investment advisory agreements and changes
in fundamental policies of a Fund will require the affirmative vote of the
shareholders of that Fund. Matters affecting a certain class of a Fund will only
be voted on by shareholders of that particular class and Fund. The Funds are not
required to hold annual shareholder meetings, although special shareholder
meetings may be held from time to time.

<PAGE>

PILGRIM AMERICA BANK AND THRIFT FUND.
PILGRIM AMERICA MAGNACAP FUND
PILGRIM AMERICA MIDCAP VALUE FUND
PILGRIM AMERICA LARGECAP VALUE FUND
PILGRIM AMERICA ASIA-PACIFIC EQUITY FUND
PILGRIM AMERICA HIGH YIELD FUND
PILGRIM AMERICA STRATEGIC INCOME FUND
PILGRIM GOVERNMENT SECURITIES INCOME FUND

40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004
1-800-992-0180

Table of Contents

Page
THE FUNDS.............................................................

THE FUNDS AT A GLANCE.................................................

SUMMARY OF EXPENSES...................................................

FINANCIAL HIGHLIGHTS..................................................

THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES.........................

INVESTMENT PRACTICES AND RISK CONSIDERATIONS..........................

All Funds: Diversification and Changes in Policies................

SHAREHOLDER GUIDE.....................................................
Pilgrim America Purchase OptionsTM................................
Purchasing Shares.................................................
Exchange Privileges and Restrictions..............................
Systematic Exchange Privilege.....................................
How to Redeem Shares..............................................

MANAGEMENT OF THE FUNDS...............................................

DIVIDENDS, DISTRIBUTIONS AND TAXES....................................

PERFORMANCE INFORMATION...............................................

ADDITIONAL INFORMATION................................................

NEW ACCOUNT APPLICATION...............................................

Investment Manager
Pilgrim America Investments, Inc.
40 North Central Avenue, Suite 1200,
Phoenix, Arizona 85004-4408

Distributor
Pilgrim America Securities, Inc.
40 North Central Avenue, Suite 1200,
Phoenix, Arizona 85004-4408

Shareholder Servicing Agent
Pilgrim America Group, Inc.
40 North Central Avenue, Suite 1200,
Phoenix, Arizona 85004-4408

Transfer Agent
DST Systems, Inc.
P.O. Box 419368
Kansas City, Missouri 64141-6368

Custodian
Investors Fiduciary Trust Company
801 Pennsylvania
Kansas City, Missouri 64105

Legal Counsel
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006

Independent Auditors
KPMG Peat Marwick LLP
725 South Figueroa Street
Los Angeles, California 90017

PROSPECTUS
November 1, 1998

<PAGE>

PILGRIM AMERICA MAGNACAP FUND
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
(800) 992-0180

STATEMENT OF ADDITIONAL INFORMATION

November 1, 1998

Pilgrim America MagnaCap Fund (the "Fund") is a diversified series of Pilgrim
America Investment Funds, Inc., an open-end management investment company (the
"Company"). The principal investment objective of the Fund is to seek growth of
capital, and dividend income as a secondary investment consideration.
Preservation of capital also is an important consideration in attaining these
objectives. While the Fund's investments will generally be in common stocks, in
periods of stock market weakness the Fund may establish a defensive position to
preserve capital by having all or any part of its assets invested in high
quality short-term fixed income securities or retained in cash or cash
equivalents.

A Prospectus for the Fund, dated November 1, 1998, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from the Fund or the Fund's Principal Underwriter, Pilgrim
America Securities, Inc. (the "Distributor"), at the address listed above. This
Statement of Additional Information is not a prospectus. It is intended to
provide you additional information regarding the activities and operations of
the Fund, and should be read in conjunction with the Fund's Prospectus. Copies
of the Prospectus may be obtained at no charge by calling (800) 992-0180.

TABLE OF CONTENTS

Page

General Information and History......................................2
Management of the Fund...............................................2
Distribution Plan....................................................6
Supplemental Description of Investments and Techniques...............9
Investment Restrictions.............................................12
Portfolio Transactions..............................................13
Additional Purchase and Redemption Information......................15
Determination of Share Price........................................20
Shareholder Services and Privileges.................................21
Distributions.......................................................24
Tax Considerations..................................................24
Performance Information.............................................27
General Information.................................................29
Financial Statements................................................30

<PAGE>

GENERAL INFORMATION AND HISTORY

Pilgrim America MagnaCap Fund (the "Fund") is a diversified series of Pilgrim
America Investment Funds, Inc. (the "Company"), a Maryland corporation that was
organized in 1969. The Company consists of two series, the Fund and Pilgrim
America High Yield Fund. Shares of the Fund may be purchased through independent
financial professionals, national and regional brokerage firms and other
financial institutions ("Authorized Dealers") or by completing the Fund's
investment application and having the Authorized Dealer forward it to the Fund's
Transfer Agent.

MANAGEMENT OF THE FUND

Board of Directors. The Fund is managed by its Board of Directors. The Directors
and Officers of the Fund are listed below. An asterisk (*) has been placed next
to the name of each Director who is an "interested person," as that term is
defined in the Investment Company Act of 1940 (the "1940 Act"), by virtue of
that person's affiliation with the Fund or Pilgrim America Investments, Inc.,
the Fund's investment manager (the "Investment Manager" or "PAII").

Mary A. Baldwin, Ph.D, 2525 E. Camelback Road, Suite 200, Phoenix, Arizona
85016. (Age 59.) Director. Realtor, Coldwell Banker Success Realty
(formerly, The Prudential Arizona Realty) for more than the last five
years. Ms. Baldwin is also Vice President, United States Olympic Committee
(November 1996 - Present), and formerly Treasurer, United States Olympic
Committee (November 1992 - November 1996). Ms. Baldwin is also a director
and/or trustee of each of the funds managed by the Investment Manager.

John P. Burke, 260 Constitution Plaza, Hartford, Connecticut 06130. (Age
66.) Director. Commissioner of Banking, State of Connecticut (January 1995
- Present). Mr. Burke was formerly President of Bristol Savings Bank
(August 1992 - January 1995) and President of Security Savings and Loan
(November 1989 - August 1992). Mr. Burke is also a director and/or trustee
of each of the funds managed by the Investment Manager.

Al Burton, 2300 Coldwater Canyon, Beverly Hills, California 90210. (Age
70.) Director. President of Al Burton Productions for more than the last
five years; formerly Vice President, First Run Syndication, Castle Rock
Entertainment (July 1992 - November 1994). Mr. Burton is also a director
and/or trustee of each of the funds managed by the Investment Manager.

Jock Patton, 40 North Central Avenue, Phoenix, Arizona 85004. (Age 52.)
Director. Private Investor. Director of Artisoft, Inc. Mr. Patton was
formerly President and Co-owner, StockVal, Inc. (April 1993 - June 1997)
and a partner and director of the law firm of Streich, Lang, P.A. (1972 -
1993). Mr. Patton is also a director and/or trustee of each of the funds
managed by the Investment Manager.

*Robert W. Stallings, 40 North Central Avenue, Suite 1200, Phoenix, AZ
85004. (Age 49.) Chairman, Chief Executive Officer, and President.
Chairman, Chief Executive Officer and President of Pilgrim America Group,
Inc. (since December 1994); Chairman, PAII (since December 1994); Director,
Pilgrim America Securities, Inc. (since December 1994); Chairman, Chief
Executive Officer and President of Pilgrim America Bank and Thrift Fund,
Inc., Pilgrim Government Securities Income Fund, Inc., Pilgrim America
Advisory Funds, Inc. (formerly, Pilgrim America Masters Series, Inc.) and
Pilgrim America Investment Funds, Inc. (since April 1995). Chairman and
Chief Executive Officer of Pilgrim America Prime Rate Trust (since April
1995). Chairman and Chief Executive Officer of Pilgrim America Capital
Corporation (formerly, Express America Holdings Corporation) ("Pilgrim
America") (since August 1990).

The Fund pays each Director who is not an interested person, the Fund's pro rata
share, as described below, of (i) an annual retainer of $20,000; (ii) $1,500 per
quarterly and special Board meeting; (iii) $500 per committee meeting; (iv) $500
per special telephonic meeting; and (v) out-of-pocket expenses. During the
fiscal year ended June 30, 1998, the Fund paid an aggregate of $ to the
Directors. The pro rata share paid by the Fund is based on the Fund's average
net assets as a percentage of the average net assets of all the funds managed by
the Investment Manager for which the Directors serve in common as
directors/trustees.

Compensation of Directors

The following table sets forth information regarding compensation of Directors
by the Fund and other funds managed by the Investment Manager for the fiscal
year ended June 30, 1998. Officers of the Fund and Directors who are interested
persons of the Fund do not receive any compensation from the Fund or any fund
managed by the Investment Manager. In the column headed "Total Compensation From
Registrant and Fund Complex Paid to Directors," the number in parentheses
indicates the total number of boards in the fund complex on which the Director
serves.

Compensation Table
Fiscal Year Ended June 30, 1998

Pension or Total
Retirement Compensation
Benefits Estimated From
Aggregate Accrued Annual Registrant
Compensation As Part of Benefits and Fund
from Fund Upon Complex Paid
Name of Person, Position Registrant Expenses Retirement to Directors
<S> <C> <C> <C> <C>

Mary A Baldwin, Director (1)(4)...................... $ N/A N/A $
(5 boards)

John P. Burke, Director(2)(4) ....................... $ N/A N/A $
(5 boards)

Al Burton, Director (3)(4)........................... $ N/A N/A $
(5 boards)

Bruce S. Foerster, Director (4)(5)................... $ N/A N/A $
(5 boards)

Jock Patton (4)(6)................................... N/A N/A
(5 boards)

Robert W. Stallings, Director and $0 N/A N/A $0
Chairman (1)(7)................................... (5 boards)

<FN>

1 Current Board member, term commencing April 7, 1995.
2 Commenced service as Trustee on May 5, 1997.
3 Board member since 1985.
4 Member of Audit Committee.

5 Mr. Foerster resigned as a Director of the Company effective September 30, 1998.
6 Current Board member, term commencing August 28, 1995.
7 "Interested person", as defined in the Investment Company Act of 1940. As an interested person of the

Fund, Mr. Stallings will not receive any compensation as a Director.
</FN>
</TABLE>

Officers

James R. Reis, Executive Vice President, and Assistant Secretary
40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. (Age 40.)
Director, Vice Chairman (since December 1994) and Executive Vice
President (since April 1995), Pilgrim America Group, Inc. and PAII;
Director (since December 1994), Vice Chairman (since November 1995) and
Assistant Secretary (since January 1995) of PASI; Executive Vice
President and Assistant Secretary of each of the other funds in the
Pilgrim America Group of funds; Chief Financial Officer (since December
1993), Vice Chairman and Assistant Secretary (since April 1993) and
former President (May 1991 - December 1993), Pilgrim America (formerly
Express America Holdings Corporation).

Stanley D. Vyner, Executive Vice President
40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. (Age 48.)
Executive Vice President (since August 1996), Pilgrim America Group,
Inc.; President and Chief Executive Officer (since August 1996), PAII;
Executive Vice President of (since July 1996) of most of the funds in
the Pilgrim America Group of Funds. Formerly Chief Executive Officer
(November 1993 - December 1995) HSBC Asset Management Americas, Inc.,
and Chief Executive Officer, and Actuary (May 1986 - October 1993) HSBC
Life Assurance Co.

James M. Hennessy, Executive Vice President and Secretary
40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. (Age 49.)
Executive Vice President (since April 1998) and Secretary (since April
1995), Pilgrim America (formerly, Express America Holdings
Corporation), Pilgrim America Group, Inc., PAII, and PASI; Executive
Vice President and Secretary of each of the funds in the Pilgrim
America Group of funds. Presently serves or has served as an officer or
director of other affiliates of Pilgrim America. Formerly, Senior Vice
President, Pilgrim America, Pilgrim America Group, Inc., PAII and PASI
(April 1995 - April 1998); Senior Vice President, Express America
Mortgage Corporation (June 1992 - August 1994) and President, Beverly
Hills Securities Corp. (January 1990 - June 1992).

Michael J. Roland, Senior Vice President and Principal Financial
Officer 40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004.
(Age 40) Senior Vice President and Chief Financial Officer, PAGI,
PAII, PASI (since June 1998) and Pilgrim America Financial (since
August, 1998). He served in same capacity from January, 1995 - April,
1997. Chief Financial Officer of Endeaver Group (April, 1997 to June,
1998).

Howard N. Kornblue, Senior Vice President and Senior Portfolio Manager
40 North Central Avenue, Suite 1200, Phoenix, AZ 85004. (Age 56.)
Senior Vice President, PAII (since August 1995). Formerly Senior Vice
President, Pilgrim Group, Inc. (November 1986 April 1995).

Kevin G. Mathews, Senior Vice President and Senior Portfolio Manager
40 North Central Avenue, Suite 1200, Phoenix, AZ 85004. (Age 39.)
Senior Vice President, PAII (since July 1998). Formerly Vice President,
PAII (August 1995 - July 1998); Vice President, Van Kampen America
Capital (May 1987 - April 1995).

Robert S. Naka, Vice President and Assistant Secretary
40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. (Age 35.)
Vice President, PAII (since April 1997) and Pilgrim America Group, Inc.
(since February 1997). Vice President and Assistant Secretary of each
of the funds in the Pilgrim America Group of Funds. Formerly Assistant
Vice President, Pilgrim America Group, Inc. (August 1995 - February
1997). Formerly, Operations Manager, Pilgrim Group, Inc. (April 1992 -
April 1995).

Robyn L. Ichilov, Vice President and Treasurer
40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. (Age 30)
Vice President, PAII (since August 1997) and Pilgrim America Financial
(since May 1998), Accounting Manager (since November 1995). Formerly
Assistant Vice President and Accounting Supervisor for Paine Webber
(June, 1993 - April, 1995).

Principal Shareholders. As of ___________,1998, the Directors and Officers of
the Fund owned less than 1% of any class of the Fund's outstanding shares. As of
____________,1998, to the knowledge of management, no person owned beneficially
or of record more than 5% of the outstanding shares of any class of the Fund,
except with respect to [TO BE PROVIDED BY AMENDMENT].

Investment Manager. The Investment Manager serves as investment manager to the
Fund and has overall responsibility for the management of the Fund. The
Investment Management Agreement between the Fund and the Investment Manager
requires the Investment Manager to oversee the provision of all investment
advisory and portfolio management services for the Fund. The Investment Manager,
which was organized in December 1994, is registered as an investment adviser
with the SEC and serves as investment adviser to four other registered
investment companies (or series thereof) as well as privately managed accounts.
As of _______, 1998, the Investment Manager had assets under management of
approximately $___ billion.

The Investment Manager is a wholly-owned subsidiary of Pilgrim America Group,
Inc., which itself is a wholly-owned subsidiary of Pilgrim America, a Delaware
corporation, the shares of which are traded on the NASDAQ National Market System
(NASDAQ: PACC) and which is a holding company that through its subsidiaries
engages in the financial services business.

The Investment Manager pays all of its expenses arising from the performance of
its obligations under the Investment Management Agreement, including all
executive salaries and expenses of the Directors and Officers of the Fund who
are employees of the Investment Manager or its affiliates and office rent for
the Fund. Other expenses incurred in the operation of the Fund are borne by it,
including, without limitation, investment advisory fees; brokerage commissions;
interest; legal fees and expenses of attorneys; fees of independent auditors,
transfer agents and dividend disbursing agents, accounting agents, and
custodians; the expense of obtaining quotations for calculating the Fund's net
asset value; taxes, if any, and the preparation of the Fund's tax returns; cost
of stock certificates and any other expenses (including clerical expenses) of
issue, sale, repurchase or redemption of shares; expenses of registering and
qualifying shares of the Fund under federal and state laws and regulations;
expenses of printing and distributing reports, notices and proxy materials to
existing shareholders; expenses of printing and filing reports and other
documents filed with governmental agencies; expenses of annual and special
shareholder meetings; expenses of printing and distributing prospectuses and
statements of additional information to existing shareholders; fees and expenses
of Directors of the Fund who are not employees of the Investment Manager or its
affiliates; membership dues in the Investment Company Institute; insurance
premiums; and extraordinary expenses such as litigation expenses.

As compensation for the foregoing services, the Investment Manager is paid
monthly a fee equal to 1.00% per annum of the average daily net assets of the
Fund on the first $30 million of net assets. The annual rate is reduced to 0.75%
on net assets from $30 million to $250 million; to 0.625% on net assets from
$250 million to $500 million; and to 0.50% on net assets over $500 million. As
of June 30, 1998, the total net assets of the Fund were approximately $ million.
For the fiscal years ended June 30, 1998, 1997 and 1996, the Fund paid
management fees to the current Investment Manager of approximately $_________,
$2,157,744 and $1,805,000, respectively.

The Investment Management Agreement will continue in effect from year to year so
long as such continuance is specifically approved at least annually by (a) the
Board of Directors or (b) the vote of a "majority" (as defined in the 1940 Act)
of the Fund's outstanding shares voting as a single class; provided, that in
either event the continuance is also approved by at least a majority of the
Board of Directors who are not "interested persons" (as defined in the 1940 Act)
of the Investment Manager by vote cast in person at a meeting called for the
purpose of voting on such approval.

The Investment Management Agreement is terminable without penalty with not less
than 60 days' notice by the Board of Directors or by a vote of the holders of a
majority of the Fund's outstanding shares voting as a single class, or upon not
less than 60 days' notice by the Investment Manager. The Investment Management
Agreement will terminate automatically in the event of its "assignment" (as
defined in the 1940 Act).

Distributor. Shares of the Fund are distributed by Pilgrim America Securities,
Inc. (the "Distributor") pursuant to an Underwriting Agreement between the Fund
and the Distributor. The Underwriting Agreement requires the Distributor to use
its best efforts on a continuing basis to solicit purchases of shares of the
Fund. The Fund and the Distributor have agreed to indemnify each other against
certain liabilities. At the discretion of the Distributor, all sales charges may
at times be reallowed to an Authorized Dealer. If 90% or more of the sales
commission is reallowed, such Authorized Dealer may be deemed to be an
"underwriter" as that term is defined under the Securities Act of 1933, as
amended. The Underwriting Agreement will remain in effect for two years and from
year to year thereafter only if its continuance is approved annually by a
majority of the Board of Directors who are not parties to such agreement or
"interested persons" of any such party and must be approved either by votes of a
majority of the Directors or a majority of the outstanding voting securities of
the Fund. See the Prospectus for information on how to purchase and sell shares
of the Fund, and the charges and expenses associated with an investment. The
Distributor, like the Investment Manager, is a wholly-owned subsidiary of
Pilgrim America Group, Inc., which is a wholly-owned subsidiary of Pilgrim
America Capital Corporation.

DISTRIBUTION PLAN

The Fund has a distribution plan pursuant to Rule 12b-1 under the 1940 Act
applicable to each class of shares of the Fund ("Rule 12b-1 Plan"). The Fund
intends to operate the Rule 12b-1 Plan in accordance with its terms and the
National Association of Securities Dealers, Inc. ("NASD") Rules concerning sales
charges. Under the Rule 12b-1 Plan, the Distributor may be entitled to payment
each month in connection with the offering, sale, and shareholder servicing of
Class A, Class B, and Class M shares in amounts not to exceed the following:
with respect to Class A shares at an annual rate of up to 0.30% of the average
daily net assets of the Class A shares of the Fund; with respect to Class B
shares at an annual rate of up to 1.00% of the average daily net assets of the
Class B shares of the Fund; and with respect to Class M shares at an annual rate
of up to 1.00% of the average daily net assets of the Class M shares of the
Fund. The Board of Directors has approved under the Rule 12b-1 Plan payments of
the following amounts to the Distributor each month in connection with the
offering, sale, and shareholder servicing of Class A, Class B, and Class M
shares as follows: (i) with respect to Class A shares at an annual rate equal to
0.30% of the average daily net assets of the Class A shares of the Fund; (ii)
with respect to Class B shares at an annual rate equal to 1.00% of the average
daily net assets of the Class B shares of the Fund; and (iii) with respect to
Class M shares at an annual rate equal to 0.75% of the average daily net assets
of the Class M shares of the Fund. Of these amounts, fees equal to an annual
rate of 0.25% of the average daily net assets of the Fund are for shareholder
servicing for each of the classes.

Under the Rule 12b-1 Plan, ongoing payments will be made on a quarterly basis to
Authorized Dealers for both distribution and shareholder servicing at the annual
rate of 0.25%, 0.25%, and 0.65% of the Fund's average daily net assets of Class
A, Class B, and Class M shares, respectively, that are registered in the name of
that Authorized Dealer as nominee or held in a shareholder account that
designates that Authorized Dealer as the dealer of record. Rights to these
ongoing payments begin to accrue in the 13th month following a purchase of Class
A or B shares and in the 1st month following purchase of Class M shares. These
fees may be used to cover the expenses of the Distributor primarily intended to
result in the sale of Class A, Class B, and Class M shares of the Fund,
including payments to Authorized Dealers for selling shares of the Fund and for
servicing shareholders of these classes of the Fund. Activities for which these
fees may be used include: preparation and distribution of advertising materials
and sales literature; expenses of organizing and conducting sales seminars;
overhead of the Distributor; printing of prospectuses and statements of
additional information (and supplements thereto) and reports for other than
existing shareholders; payments to dealers and others that provide shareholder
services; and costs of administering the Rule 12b-1 Plan.

In the event a Rule 12b-1 Plan is terminated in accordance with its terms, the
obligations of the Fund to make payments to the Distributor pursuant to the Rule
12b-1 Plan will cease and the Fund will not be required to make any payments for
expenses incurred after the date the Plan terminates. The Distributor will be
reimbursed for its actual expenses incurred under the Rule 12b-1 Plan, with
respect to Class A shares. With respect to Class B shares and Class M shares,
the Distributor will receive payment without regard to actual distribution
expenses it incurs.

In addition to providing for the expenses discussed above, the Rule 12b-1 Plan
also recognizes that the Investment Manager and/or the Distributor may use their
resources to pay expenses associated with activities primarily intended to
result in the promotion and distribution of the Fund's shares and other funds
managed by the Investment Manager. In some instances, additional compensation or
promotional incentives may be offered to dealers that have sold or may sell
significant amounts of shares during specified periods of time. Such
compensation and incentives may include, but are not limited to, cash,
merchandise, trips and financial assistance to dealers in connection with
pre-approved conferences or seminars, sales or training programs for invited
sales personnel, payment for travel expenses (including meals and lodging)
incurred by sales personnel and members of their families, or other invited
guests, to various locations for such seminars or training programs, seminars
for the public, advertising and sales campaigns regarding the Fund or other
funds managed by the Investment Manager and/or other events sponsored by
dealers. In addition, the Distributor may, at its own expense, pay concessions
in addition to those described above to dealers that satisfy certain criteria
established from time to time by the Distributor. These conditions relate to
increasing sales of shares of the Funds over specified periods and to certain
other factors. These payments may, depending on the dealer's satisfaction of the
required conditions, be periodic and may be up to (1) 0.30% of the value of the
Funds' shares sold by the dealer during a particular period, and (2) 0.10% of
the value of the Funds' shares held by the dealer's customers for more than one
year, calculated on an annual basis.

The Rule 12b-1 Plan has been approved by the Board of Directors, including all
of the Directors who are not interested persons of the Fund as defined in the
1940 Act, and by the Fund's shareholders. Each Rule 12b-1 Plan must be renewed
annually by the Board of Directors, including a majority of the Directors who
are not interested persons of the Fund and who have no direct or indirect
financial interest in the operation of the Rule 12b-1 Plan, cast in person at a
meeting called for that purpose. It is also required that the selection and
nomination of such Directors be committed to the Directors who are not
interested persons. The Rule 12b-1 Plan and any distribution or service
agreement may be terminated as to a Fund at any time, without any penalty, by
such Directors or by a vote of a majority of the Fund's outstanding shares on 60
days' written notice. The Distributor or any Authorized Dealer may also
terminate its respective distribution or service agreement at any time upon
written notice.

In approving each Rule 12b-1 Plan, the Board of Directors has determined that
differing distribution arrangements in connection with the sale of new shares of
the Fund is necessary and appropriate in order to meet the needs of different
potential investors. Therefore, the Board of Directors, including those
Directors who are not interested persons of the Fund, concluded that, in the
exercise of their reasonable business judgment and in light of their fiduciary
duties, there is a reasonable likelihood that the Rule 12b-1 Plan, as tailored
to each class of the Fund, will benefit the Fund and the shareholders.

Each Rule 12b-1 Plan and any distribution or service agreement may not be
amended to increase materially the amount spent for distribution expenses as to
a Fund without approval by a majority of the Fund's outstanding shares, and all
material amendments to a Plan or any distribution or service agreement shall be
approved by the Directors who are not interested persons of the Fund, cast in
person at a meeting called for the purpose of voting on any such amendment.

The Distributor is required to report in writing to the Board of Directors at
least quarterly on the monies reimbursed to it under each Rule 12b-1 Plan, as
well as to furnish the Board with such other information as may be reasonably
requested in connection with the payments made under the Rule 12b-1 Plan in
order to enable the Board to make an informed determination of whether the Rule
12b-1 Plan should be continued.

Total distribution expenses incurred by the Distributor for the costs of
promotion and distribution of the Fund's Class A shares for the fiscal year
ended June 30, 1998 were $_____, including expenses for: advertising - $_____;
salaries and commissions - $_____; printing, postage, and handling - $_____;
brokers' servicing fees - $_____; and miscellaneous and other promotional
activities - $_____. Total distribution expenses incurred by the Distributor for
the costs of promotion and distribution of the Fund's Class B shares for the
fiscal year ended June 30, 1998 were $ , including expenses for: advertising --
$_____; salaries and commissions -- $_____; printing, postage, and handling --
$_____; brokers' servicing fees -- $_____; and miscellaneous and other
promotional activities -- $_____. Total distribution expenses incurred by the
Distributor for the costs of promotion and distribution of the Fund's Class M
shares for the fiscal year ended June 30, 1998 were $_____, including expenses
for: advertising -- $_____; salaries and commissions -- $_____; printing,
postage, and handling -- $_____; brokers' servicing fees -- $_____; and
miscellaneous and other promotional activities -- $_____. Of the total amount
incurred by the Distributor during the last year, $_____ was for the costs of
personnel of the Distributor and its affiliates involved in the promotion and
distribution of the Fund's shares.

The sales charge retained by the Distributor and the commissions reallowed to
selling dealers are not an expense of the Fund and have no effect on the net
asset value of the Fund. For the fiscal years ended June 30, 1998, 1997 and
1996, total commissions allowed to other dealers were approximately $_________,
$1,545,304 and $954,329, respectively. For the fiscal years ended June 30, 1998,
1997 and 1996, the current Distributor retained approximately $______, $93,294
and $23,160 or approximately ____%, 6.04% and 2.37% of the total commissions
assessed on shares of the Fund.

Under the Glass-Steagall Act and other applicable laws, certain banking
institutions are prohibited from distributing investment company shares.
Accordingly, such banks may only provide certain agency or administrative
services to their customers for which they may receive a fee from the
Distributor under a Rule 12b-1 Plan. If a bank were prohibited from providing
such services, shareholders would be permitted to remain as Fund shareholders
and alternate means for continuing the servicing of such shareholders would be
sought. In such event, changes in services provided might occur and such
shareholders might no longer be able to avail themselves of any automatic
investment or other service then being provided by the bank. It is not expected
that shareholders would suffer any adverse financial consequences as a result of
any of these occurrences.

SUPPLEMENTAL DESCRIPTION OF INVESTMENTS AND TECHNIQUES

The following discussion of investment policies supplements the Fund's
investment objectives and policies set forth in the Prospectus under the heading
"The Fund's Investment Objectives and Policies."

General

As noted in the Prospectus, the principal objective of the Fund is to attain
growth of capital, with dividend income as a secondary consideration.
Preservation of capital also is an important consideration in seeking to obtain
these objectives. There is, of course, no assurance that the Fund's objectives
will be achieved since all investments are inherently subject to market risk.

Common Stock, Convertible Securities and Other Equity Securities

The Fund will invest in common stocks, which represent an equity (ownership)
interest in a company. This ownership interest generally gives the Fund the
right to vote on issues affecting the company's organization and operations.

The Fund may also buy other types of equity securities such as convertible
securities, preferred stock, and warrants or other securities that are
exchangeable for shares of common stock. A convertible security is a security
that may be converted either at a stated price or rate within a specified period
of time into a specified number of shares of common stock. By investing in
convertible securities, the Fund seeks the opportunity, through the conversion
feature, to participate in the capital appreciation of the common stock into
which the securities are convertible, while investing at a better price than may
be available on the common stock or obtaining a higher fixed rate of return than
is available on common stocks.

Repurchase Agreements

The Fund may use any portion of its assets invested in U.S. Government
securities, and concurrently enter into repurchase agreements with respect to
such securities. Such repurchase agreements will be made only with government
securities dealers recognized by the Federal Reserve Board or with member banks
of the Federal Reserve System. Under such agreements, the seller of the security
agrees to repurchase it at a mutually agreed upon time and price. The resale
price is in excess of the purchase price and reflects an agreed upon interest
rate for the period of time the agreement is outstanding. The period of these
repurchase agreements are usually quite short, from overnight to one week, while
the underlying securities generally have longer maturities.

The Fund will always receive as collateral for such repurchase agreements, U.S.
Government securities acceptable to it whose market value is equal to at least
100% of the amount invested by the Fund, and the Fund will make payment for such
securities only upon physical delivery or evidence of book entry transfer to the
account of its Custodian Bank. If the seller defaults, the Fund might incur a
loss or delay in the realization of proceeds if the value of the collateral
securing the repurchase agreement declines and it might incur disposition costs
in liquidating the collateral. The Fund may not enter into a repurchase
agreement with more than seven days to maturity if, as a result, more than 10%
of the value of the Fund's total assets would be invested in such repurchase
agreements.

Lending of Portfolio Securities

In order to generate additional income, the Fund may lend its portfolio
securities in an amount up to 33-1/3% of total Fund assets to broker-dealers,
major banks, or other recognized domestic institutional borrowers of securities.
No lending may be made with any companies affiliated with Pilgrim America
Investments, Inc. (the "Investment Manager"). The borrower at all times during
the loan must maintain with the Fund cash or cash equivalent collateral or
provide to the Fund an irrevocable letter of credit equal in value to at least
100% of the value of the securities loaned. During the time portfolio securities
are on loan, the borrower pays the Fund any interest paid on such securities,
and the Fund may invest the cash collateral and earn additional income, or it
may receive an agreed-upon amount of interest income from the borrower who has
delivered equivalent collateral or a letter of credit. Loans are subject to
termination at the option of the Fund or the borrower at any time. The Fund may
pay reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the income earned on the cash to the borrower or
placing broker.

Foreign Securities

Foreign financial markets, while growing in volume, have, for the most part,
substantially less volume than United States markets, and securities of many
foreign companies are less liquid and their prices more volatile than securities
of comparable domestic companies. The foreign markets also have different
clearance and settlement procedures, and in certain markets there have been
times when settlements have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions.
Delivery of securities may not occur at the same time as payment in some foreign
markets. Delays in settlement could result in temporary periods when a portion
of the assets of the Fund is uninvested and no return is earned thereon. The
inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to settlement problems could
result either in losses to the Fund due to subsequent declines in value of the
portfolio security or, if the Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser.

As foreign companies are not generally subject to uniform accounting, auditing
and financial reporting standards and practices comparable to those applicable
to domestic companies, there may be less publicly available information about
certain foreign companies than about domestic companies. There is generally less
government supervision and regulation of exchanges, financial institutions and
issuers in foreign countries than there is in the United States. A foreign
government may impose exchange control regulations that may have an impact on
currency exchange rates, and there is the possibility of expropriation, regular
and confiscatory taxation, political or social instability, or diplomatic
developments that could affect U.S. investments in those countries.

Although the Fund will use reasonable efforts to obtain the best available price
and the most favorable execution with respect to all transactions and the
Investment Manager will consider the full range and quality of services offered
by the executing broker or dealer when making these determinations, fixed
commissions on many foreign stock exchanges are generally higher than negotiated
commissions on U.S. exchanges. Certain foreign governments levy withholding
taxes against dividend and interest income or may impose other taxes. Although
in some countries a portion of these taxes is recoverable, the non-recovered
portion of foreign withholding taxes will reduce the income received by the Fund
on these investments. However, these foreign withholding taxes are not expected
to have a significant impact on the Fund, since the Fund's investment objective
is to seek growth of capital, and dividend income as a secondary consideration.

There are certain additional risks in owning foreign securities, including those
resulting from: (i) fluctuations in currency exchange rates; (ii) devaluation of
currencies; (iii) future political or economic developments and the possible
imposition of currency exchange blockages or other foreign governmental laws or
restrictions; (iv) reduced availability of public information concerning
issuers; (v) accounting, auditing and financial reporting standards or other
regulatory practices and requirements that are not uniform when compared to
those applicable to domestic companies; and (vi) limitations on foreign
ownership of equity securities. Also, securities of many foreign companies may
be less liquid and the prices more volatile than those of domestic companies.
With certain foreign countries, there is the possibility of expropriation,
nationalization, confiscatory taxation and limitations on the use or removal of
funds or other assets of the Funds, including the withholding of dividends.

Banking Industry Obligations

The Fund may invest in banking industry obligations, including certificates of
deposit, bankers' acceptances, and fixed time deposits, with a maturity of one
year or less. The Fund will not invest in obligations issued by a bank unless
(i) the bank is a U.S. bank and a member of the FDIC and (ii) the bank has total
assets of at least $1 billion (U.S.) or, if not, the Fund's investment is
limited to the FDIC-insured amount of $100,000.

Portfolio Turnover

In seeking growth of capital, the Fund reserves the right to dispose of any
security without regard to the period of time it has been held, and to take
short- or long-term profits when such action is consistent with its objectives
and with sound investment practice. The Fund may at times take prompt advantage
of changes in market environment or purchase securities based primarily upon
short-term market considerations; however, its principal objective is to seek
long-term gains.

During its fiscal years ended June 30, 1996, 1997, and 1998 the Fund's annual
total portfolio turnover was 15%, 77% and %, respectively. The annual turnover
rate of the Fund's portfolio is generally expected to be less than 100%,
although it may be in excess of 100% in years when the Fund has taken a
significant defensive position. The turnover rate may vary greatly from year to
year as well as within a year, and may also be affected by cash requirements for
redemptions of Fund shares, and by the necessity of maintaining the Fund as a
regulated investment company under the Internal Revenue Code in order to receive
favorable tax treatment.

Diversification

The Fund is a diversified investment company, which means that it meets the
following requirements: at least 75% of the value of its total assets is
represented by cash and cash items (including receivables), U.S. Government
securities, securities of other investment companies, and other securities for
the purposes of this calculation limited in respect of any one issuer to an
amount not greater in value than 5% of the value of the Fund's total assets and
to not more than 10% of the outstanding voting securities of such issuer.

INVESTMENT RESTRICTIONS

The Fund may not:

(1) Engage in the underwriting of securities of other issuers.

(2) Invest in "restricted securities" which cannot in the absence of an
exemption be sold without an effective registration statement under the
Securities Act of 1933, as amended.

(3) Engage in the purchase and sale of interests in real estate,
commodities or commodity contracts (although this does not preclude marketable
securities of companies engaged in these activities).

(4) Engage in the making of loans to other persons, except (a) through the
purchase of a portion of an issue of publicly distributed bonds, debentures or
other evidences of indebtedness customarily purchased by institutional investors
or (b) by the loan of its portfolio securities in accordance with the policies
described under "Lending of Portfolio Securities."

(5) Borrow money except from banks for temporary or emergency purposes, and
then not in excess of 5% of the value of its total assets.

(6) Mortgage, pledge or hypothecate its assets in any manner, except in
connection with any authorized borrowings and then not in excess of 10% of the
value of its total assets.

(7) Purchase securities on margin, except that it may obtain such
short-term credits as may be necessary for the clearance of its portfolio
transactions.

(8) Effect short sales, or purchase or sell puts, calls, spreads or
straddles.

(9) Buy or sell oil, gas, or other mineral leases, rights or royalty
contracts, or participate on a joint or joint and several basis in any
securities trading account.

(10) Invest in securities of other investment companies, except as they may
be acquired as part of a merger, consolidation or acquisition of assets.

(11) Invest more than 25% of the value of its total assets in any one
industry.

(12) Purchase or retain in its portfolio any security if an Officer or
Director of the Fund or its investment manager owns beneficially more than 1/2
of 1% of the outstanding securities of such issuer, and in the aggregate such
persons own beneficially more than 5% of the outstanding securities of such
issuer.

(13) Issue senior securities, except insofar as the Fund may be deemed to
have issued a senior security by reason of borrowing money in accordance with
the Fund's borrowing policies or investment techniques, and except for purposes
of this investment restriction, collateral, escrow, or margin or other deposits
with respect to the making of short sales, the purchase or sale of futures
contracts or related options, purchase or sale of forward foreign currency
contracts, and the writing of options on securities are not deemed to be an
issuance of a senior security.

The Fund is also subject to the following restrictions and policies that are not
fundamental and may, therefore, be changed by the Board of Directors without
shareholder approval. The Fund will limit its investments in warrants, valued at
the lower of cost or market, to 5% of its net assets. Included within that
amount, but not to exceed 2% of the Fund's net assets, may be warrants that are
not listed on the New York or American Stock Exchange. The Fund will not engage
in the purchase or sale of real estate or real estate limited partnerships. The
Fund also will not make loans to other persons unless collateral values are
continuously maintained at no less than 100% by "marking to market" daily.

PORTFOLIO TRANSACTIONS

In all purchases and sales of securities for the portfolio of the Fund, the
primary consideration is to obtain the most favorable price and execution
available. Pursuant to the Management Agreement, the Investment Manager
determines, subject to the instructions of and review by the Board of Directors
of the Company, which securities are to be purchased and sold by the Fund and
which brokers are to be eligible to execute portfolio transactions of the Fund.
Purchases and sales of securities in the over-the-counter market will generally
be executed directly with a "market-maker," unless in the opinion of the
Investment Manager, a better price and execution can otherwise be obtained by
using a broker for the transaction.

In placing portfolio transactions, the Investment Manager will use its best
efforts to choose a broker capable of providing the brokerage services necessary
to obtain the most favorable price and execution available. The full range and
quality of brokerage services available will be considered in making these
determinations, such as the size of the order, the difficulty of execution, the
operational facilities of the firm involved, the firm's risk in positioning a
block of securities, and other factors. The Investment Manager seeks to obtain
the best commission rate available from brokers which are believed to be capable
of providing efficient execution and handling of the orders. In those instances
where it is reasonably determined that more than one broker can offer the
brokerage services needed to obtain the most favorable price and execution
available, consideration may be given to those brokers that supply research and
statistical information to the Fund and/or the Investment Manager, and provide
other services in addition to execution services. The Investment Manager
considers such information, which is in addition to and not in lieu of the
services required to be performed by the Investment Manager under its Agreement
with the Fund, to be useful in varying degrees, but of indeterminable value. The
placement of portfolio brokerage with broker-dealers who have sold shares of the
Fund is subject to rules adopted by the NASD. Provided the Fund's officers are
satisfied that the Fund is receiving the most favorable price and execution
available, the Fund may also consider the sale of the Fund's shares as a factor
in the selection of broker-dealers to execute its portfolio transactions.

While it will continue to be the Fund's general policy to seek first to obtain
the most favorable price and execution available, in selecting a broker to
execute portfolio transactions for the Fund, the Fund may also give weight to
the ability of a broker to furnish brokerage and research services to the Fund
or the Investment Manager, even if the specific services were not imputed to the
Fund and were useful to the Investment Manager in advising other clients. In
negotiating commissions with a broker, the Fund may therefore pay a higher
commission than would be the case if no weight were given to the furnishing of
these supplemental services, provided that the amount of such commission has
been determined in good faith by the Investment Manager to be reasonable in
relation to the value of the brokerage and research services provided by such
broker.

During the Fund's last three fiscal years ended June 30, 1996, 1997 and 1998,
total brokerage commissions paid by the Fund amounted to approximately $113,000,
$600,000 and $ , respectively. The Fund does not intend to effect any brokerage
transaction in its portfolio securities with any broker-dealer affiliated
directly or indirectly with the Investment Manager, except for any sales of
portfolio securities that may legally be made pursuant to a tender offer, in
which event the Investment Manager will offset against the management fee a part
of any tender fees that legally may be received by such affiliated
broker-dealer.

Investment decisions for the Fund are made independently from those of the other
Pilgrim America Funds, although it is possible that at times identical
securities will be acceptable for more than one of such funds. Simultaneous
transactions may be effected when the same security is considered suitable for
the investment objectives of more than one of these funds. However, the position
of each fund in the same issuer may vary and the length of time that each fund
may choose to hold its investment in the same issuer may likewise vary. Due to
the cash position of a fund at any given time, an acceptable security for
investment by such fund may not in fact be purchased by that fund at the same
time or at all. To the extent any of the funds seeks to acquire the same
security at the same time, one or more of the funds may not be able to acquire
as large a portion of such security as it desires, or it may have to pay a
higher price for such security. Similarly, a fund may not be able to obtain as
high a price for, or as large an execution of, an order to sell a particular
security if one or more of the other funds desires to sell the same security at
the same time. If more than one of such funds simultaneously purchases or sells
the same security, each day's transactions in such security will be averaged as
to price and allocated between such funds in accordance with the total amount of
such security being purchased or sold by each of such funds. It is recognized
that in some cases this system could have a detrimental effect on the price or
value of the security insofar as the Fund is concerned.

A broker or dealer utilized by the Investment Manager may furnish statistical,
research and other information or services that are deemed by the Investment
Manager to be beneficial to a Fund's investment programs. Research services
received from brokers supplement the Investment Manager's own research, and may
include the following types of information: statistical and background
information on industry groups and individual companies; forecasts and
interpretations with respect to U.S. and foreign economies, securities, markets,
specific industry groups and individual companies; information on political
developments; portfolio management strategies; performance information on
securities and information concerning prices of securities; and information
supplied by specialized services to the Investment Manager and to the Fund's
Board Members with respect to the performance, investment activities and fees
and expenses of other mutual funds. Such information may be communicated
electronically, orally or in written form. Research services may also include
providing equipment used to communicate research information, arranging meetings
with management of companies and providing access to consultants who supply
research information.

The outside research assistance is useful to the Investment Manager since the
brokers utilized by the Investment Manager as a group tend to follow a broader
universe of securities and other matters than the Investment Manager's staff can
follow. In addition, this research provides the Investment Manager with a
diverse perspective on financial markets. Research services which are provided
to the Investment Manager by brokers are available for the benefit of all
accounts managed or advised by the Investment Manager. In some cases, the
research services are available only from the broker providing such services. In
other cases, the research services may be obtainable from alternative sources in
return for cash payments. The Investment Manager is of the opinion that because
the broker research supplements, rather than replaces, its research, the receipt
of such research does not tend to decrease its expenses, but tends to improve
the quality of its investment advice. However, to the extent that the Investment
Manager would have purchased any such research services had such services not
been provided by brokers, the expenses of such services to the Investment
Manager could be considered to have been reduced accordingly. Certain research
services furnished by brokers or dealers may be useful to the Investment Manager
with respect to clients other than a specific Fund. The Investment Manager is of
the opinion that this material is beneficial in supplementing the Investment
Manager's research and analysis, and, therefore, it may benefit a Fund by
improving the quality of the investment advice. The advisory fees paid by a Fund
are not reduced because the Investment Manager receives such services.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

Shares of the Fund are offered at the net asset value next computed following
receipt of the order by the dealer (and/or the Distributor) or by the Fund's
transfer agent, DST Systems, Inc. ("Transfer Agent"), plus, for Class A and
Class M shares, a varying sales charge depending upon the class of shares
purchased and the amount of money invested, as set forth in the Prospectus. The
Distributor may, from time to time, at its discretion, allow the selling dealer
to retain 100% of such sales charge, and such dealer may therefore be deemed an
"underwriter" under the Securities Act of 1933, as amended. The Distributor, at
its expense, may also provide additional promotional incentives to dealers in
connection with sales of shares of the Fund and other funds managed by the
Investment Manager. In some instances, such incentives may be made available
only to dealers whose representatives have sold or are expected to sell
significant amounts of such shares. The incentives may include payment for
travel expenses, including lodging, incurred in connection with trips taken by
qualifying registered representatives and members of their families to locations
within or outside of the United States, merchandise or other items. Dealers may
not use sales of the Fund's shares to qualify for the incentives to the extent
such may be prohibited by the laws of any state.

Certain investors may purchase shares of the Fund with liquid assets with a
value which is readily ascertainable by reference to a domestic exchange price
and which would be eligible for purchase by the Fund consistent with the Fund's
investment policies and restrictions. These transactions only will be effected
if the Investment Manager intends to retain the security in the Fund as an
investment. Assets so purchased by the Fund will be valued in generally the same
manner as they would be valued for purposes of pricing the Fund's shares, if
such assets were included in the Fund's assets at the time of purchase. The Fund
reserves the right to amend or terminate this practice at any time.

Special Purchases at Net Asset Value

Class A or Class M shares of the Fund may be purchased at net asset value,
without a sales charge, by persons who have redeemed their Class A or Class M
shares of the Fund (or shares of other funds managed by the Investment Manager,
in accordance with the terms of such privileges established for such funds)
within the previous 90 days. The amount that may be so reinvested in the Fund is
limited to an amount up to, but not exceeding, the redemption proceeds (or to
the nearest full share if fractional shares are not purchased). In order to
exercise this privilege, a written order for the purchase of shares must be
received by the Fund's Transfer Agent, or be postmarked, within 90 days after
the date of redemption. This privilege may only be used once per calendar year.
Payment must accompany the request and the purchase will be made at the then
current net asset value of the Fund. Such purchases may also be handled by a
securities dealer who may charge a shareholder for this service. If the
shareholder has realized a gain on the redemption, the transaction is taxable
and any reinvestment will not alter any applicable Federal capital gains tax. If
there has been a loss on the redemption and a subsequent reinvestment pursuant
to this privilege, some or all of the loss may not be allowed as a tax deduction
depending upon the amount reinvested, although such disallowance is added to the
tax basis of the shares acquired upon the reinvestment.

Class A or Class M shares of the Fund may also be purchased at net asset value
by any charitable organization or any state, county, or city, or any
instrumentality, department, authority or agency thereof that has determined
that the Fund is a legally permissible investment and that is prohibited by
applicable investment law from paying a sales charge or commission in connection
with the purchase of shares of any registered management investment company (an
"eligible authority"). If an investment by an eligible authority at net asset
value is made though a dealer who has executed a selling group agreement with
respect to the Fund (or the other Pilgrim America Funds), the Distributor may
pay the selling firm 0.25% of the amount invested.

Shareholders of Pilgrim America General Money Market Shares who acquired their
shares by using all or a portion of the proceeds from the redemption of Class A
or Class M shares of the Fund or other open-end Pilgrim America Funds may
reinvest such amount plus any shares acquired through dividend reinvestment in
Class A or Class M shares of the Fund at its current net asset value, without a
sales charge.

Officers, directors and bona fide full-time employees of the Fund and officers,
directors and full-time employees of the Investment Manager, the Distributor,
the Fund's service providers or affiliated corporations thereof or any trust,
pension, profit-sharing or other benefit plan for such persons, broker-dealers,
for their own accounts or for members of their families (defined as current
spouse, children, parents, grandparents, uncles, aunts, siblings, nephews,
nieces, step-relations, relations at-law, and cousins) employees of such
broker-dealers (including their immediate families) and discretionary advisory
accounts of the Investment Manager, may purchase Class A or Class M shares of
the Fund at net asset value without a sales charge. Such purchaser may be
required to sign a letter stating that the purchase is for his own investment
purposes only and that the securities will not be resold except to the Fund. The
Fund may, under certain circumstances, allow registered investment advisers to
make investments on behalf of their clients at net asset value without any
commission or concession.

Class A or M shares may also be purchased at net asset value by certain fee
based registered investment advisers, trust companies and bank trust departments
under certain circumstances making investments on behalf of their clients and by
shareholders who have authorized the automatic transfer of dividends from the
same class of another Participating Fund or from Pilgrim America Prime Rate
Trust.

Shares of the Fund are acquired at net asset value by Investors Fiduciary Trust
Company, Kansas City, Missouri, as Custodian for Pilgrim Investment Plans, a
unit investment trust for the accumulation of shares of the Fund. As of
_____________, 1998, less than 2% of the Fund's then total outstanding shares
were held by said Custodian for the account of such plan holders.

Letters of Intent and Rights of Accumulation

An investor may immediately qualify for a reduced sales charge on a purchase of
Class A or Class M shares of the Fund or any open-end Pilgrim America Fund which
offers Class A shares, Class M shares or shares with front-end sales charges, by
completing the Letter of Intent section of the Shareholder Application in the
Prospectus (the "Letter of Intent" or "Letter"). By completing the Letter, the
investor expresses an intention to invest during the next 13 months a specified
amount which if made at one time would qualify for the reduced sales charge. At
any time within 90 days after the first investment which the investor wants to
qualify for the reduced sales charge, a signed Shareholder Application, with the
Letter of Intent section completed, may be filed with the Fund. After the Letter
of Intent is filed, each additional investment made will be entitled to the
sales charge applicable to the level of investment indicated on the Letter of
Intent as described above. Sales charge reductions based upon purchases in more
than one Pilgrim America Fund will be effective only after notification to the
Distributor that the investment qualifies for a discount. The shareholder's
holdings in the Investment Manager's Funds (excluding Pilgrim America General
Money Market Shares) acquired within 90 days before the Letter of Intent is
filed will be counted towards completion of the Letter of Intent but will not be
entitled to a retroactive downward adjustment of sales charge until the Letter
of Intent is fulfilled. Any redemptions made by the shareholder during the
13-month period will be subtracted from the amount of the purchases for purposes
of determining whether the terms of the Letter of Intent have been completed. If
the Letter of Intent is not completed within the 13-month period, there will be
an upward adjustment of the sales charge as specified below, depending upon the
amount actually purchased (less redemption) during the period.

An investor acknowledges and agrees to the following provisions by completing
the Letter of Intent section of the Shareholder Application in the Prospectus. A
minimum initial investment equal to 25% of the intended total investment is
required. An amount equal to 5.75% of the total intended purchase will be held
in escrow at Pilgrim America Funds, in the form of shares, in the investor's
name to assure that the full applicable sales charge will be paid if the
intended purchase is not completed. The shares in escrow will be included in the
total shares owned as reflected on the monthly statement; income and capital
gain distributions on the escrow shares will be paid directly to the investor.
The escrow shares will not be available for redemption by the investor until the
Letter of Intent has been completed, or the higher sales charge paid. If the
total purchases, less redemptions, equal the amount specified under the Letter,
the shares in escrow will be released. If the total purchases, less redemptions,
exceed the amount specified under the Letter and is an amount which would
qualify for a further quantity discount, a retroactive price adjustment will be
made by the Distributor and the dealer with whom purchases were made pursuant to
the Letter of Intent (to reflect such further quantity discount) on purchases
made within 90 days before, and on those made after filing the Letter. The
resulting difference in offering price will be applied to the purchase of
additional shares at the applicable offering price. If the total purchases, less
redemptions, are less than the amount specified under the Letter, the investor
will remit to the Distributor an amount equal to the difference in dollar amount
of sales charge actually paid and the amount of sales charge which would have
applied to the aggregate purchases if the total of such purchases had been made
at a single account in the name of the investor or to the investor's order. If
within 10 days after written request such difference in sales charge is not
paid, the redemption of an appropriate number of shares in escrow to realize
such difference will be made. If the proceeds from a total redemption are
inadequate, the investor will be liable to the Distributor for the difference.
In the event of a total redemption of the account prior to fulfillment of the
Letter of Intent, the additional sales charge due will be deducted from the
proceeds of the redemption and the balance will be forwarded to the investor. By
completing the Letter of Intent section of the Shareholder Application, an
investor grants to the Distributor a security interest in the shares in escrow
and agrees to irrevocably appoint the Distributor as his attorney-in-fact with
full power of substitution to surrender for redemption any or all shares for the
purpose of paying any additional sales charge due and authorizes the Transfer
Agent or Sub-Transfer Agent to receive and redeem shares and pay the proceeds as
directed by the Distributor. The investor or the securities dealer must inform
the Transfer Agent or the Distributor that this Letter is in effect each time a
purchase is made.

If at any time prior to or after completion of the Letter of Intent the investor
wishes to cancel the Letter of Intent, the investor must notify the Distributor
in writing. If, prior to the completion of the Letter of Intent, the investor
requests the Distributor to liquidate all shares held by the investor, the
Letter of Intent will be terminated automatically. Under either of these
situations, the total purchased may be less than the amount specified in the
Letter of Intent. If so, the Distributor will redeem at NAV to remit to the
Distributor and the appropriate authorized dealer an amount equal to the
difference between the dollar amount of the sales charge actually paid and the
amount of the sales charge that would have been paid on the total purchases if
made at one time.

The value of shares of the Fund plus shares of the other funds distributed by
the Distributor (excluding Pilgrim America General Money Market Shares) can be
combined with a current purchase to determine the reduced sales charge and
applicable offering price of the current purchase. The reduced sales charge
applies to quantity purchases made at one time or on a cumulative basis over any
period of time by (i) an investor, (ii) the investor's spouse and children under
the age of majority, (iii) the investor's custodian accounts for the benefit of
a child under the Uniform Gifts to Minors Act, (iv) a trustee or other fiduciary
of a single trust estate or a single fiduciary account (including a pension,
profit-sharing and/or other employee benefit plans qualified under Section 401
of the Code), by trust companies, registered investment advisers, banks and bank
trust departments for accounts over which they exercise exclusive investment
discretionary authority and which are held in a fiduciary, agency, advisory,
custodial or similar capacity.

The reduced sales charge also applies on a non-cumulative basis, to purchases
made at one time by the customers of a single dealer, in excess of $1 million.
The Letter of Intent option may be modified or discontinued at any time.

Shares of the Fund and other open-end Pilgrim America Funds (excluding Pilgrim
America General Money Market Shares) purchased and owned of record or
beneficially by a corporation, including employees of a single employer (or
affiliates thereof) including shares held by its employees, under one or more
retirement plans, can be combined with a current purchase to determine the
reduced sales charge and applicable offering price of the current purchase,
provided such transactions are not prohibited by one or more provisions of the
Employee Retirement Income Security Act or the Internal Revenue Code.
Individuals and employees should consult with their tax advisors concerning the
tax rules applicable to retirement plans before investing.

Redemptions

Payment to shareholders for shares redeemed will be made within three days after
receipt by the Fund's Transfer Agent of the written request in proper form,
except that the Fund may suspend the right of redemption or postpone the date of
payment as to the Fund during any period when (a) trading on the New York Stock
Exchange is restricted as determined by the Securities and Exchange Commission
(the "SEC" or the "Commission") or such Exchange is closed for other than
weekends and holidays; (b) an emergency exists as determined by the Commission
making disposal of portfolio securities or valuation of net assets of the Fund
not reasonably practicable; or (c) for such other period as the Commission may
permit for the protection of the Fund's shareholders. At various times, the Fund
may be requested to redeem shares for which it has not yet received good
payment. Accordingly, the Fund may delay the mailing of a redemption check until
such time as it has assured itself that good payment has been collected for the
purchase of such shares, which may take up to 15 days or longer.

The Fund intends to pay in cash for all shares redeemed, but under abnormal
conditions that make payment in cash unwise the Fund may make payment wholly or
partly in securities at their then current market value equal to the redemption
price. In such case, an investor may incur brokerage costs in converting such
securities to cash. However, the Fund has elected to be governed by the
provisions of Rule 18f-1 under the 1940 Act, which contain a formula for
determining the minimum amount of cash to be paid as part of any redemption. In
the event the Fund must liquidate portfolio securities to meet redemptions, it
reserves the right to reduce the redemption price by an amount equivalent to the
pro-rated cost of such liquidation not to exceed one percent of the net asset
value of such shares.

Due to the relatively high cost of handling small investments, the Fund reserves
the right, upon 30 days' written notice, to redeem, at net asset value (less any
applicable deferred sales charge), the shares of any shareholder whose account
has a value of less than $1,000 in the Fund, other than as a result of a decline
in the net asset value per share. Before the Fund redeems such shares and sends
the proceeds to the shareholder, it will notify the shareholder that the value
of the shares in the account is less than the minimum amount and will allow the
shareholder 30 days to make an additional investment in an amount that will
increase the value of the account to at least $1,000 before the redemption is
processed. This policy will not be implemented where the Fund has previously
waived the minimum investment requirements.

The value of shares on redemption or repurchase may be more or less than the
investor's cost, depending upon the market value of the portfolio securities at
the time of redemption or repurchase.

Certain purchases of Class A shares and most Class B shares may be subject to a
CDSC or redemption fee. For purchase payments subject to such CDSC, the
Distributor may pay out of its own assets a commission from 0.25% to 1.00% of
the amount invested for Class A purchases over $1 million and 4% of the amount
invested for Class B shares.

Shareholders will be charged a CDSC or redemption fee if certain of those shares
are redeemed within the applicable time periods as stated in the Prospectus.

No CDSC or redemption fee is imposed on any shares subject to a CDSC or
redemption fee to the extent that those shares (i) are no longer subject to the
applicable holding period, (ii) resulted from reinvestment of distributions on
CDSC or redemption fee shares or (iii) were exchanged for shares of another fund
managed by the Investment Manager, provided that the shares acquired in such
exchange and subsequent exchanges will continue to remain subject to the CDSC,
if applicable, until the applicable holding period expires.

The CDSC or redemption fee will be waived for certain redemptions of shares upon
(i) the death or permanent disability of a shareholder, or (ii) in connection
with mandatory distributions from an Individual Retirement Account ("IRA") or
other qualified retirement plan. The CDSC or redemption fee will be waived in
the case of a redemption of shares following the death or permanent disability
of a shareholder if the redemption is made within one year of death or initial
determination of permanent disability. The waiver is available for total or
partial redemptions of shares owned by an individual or an individual in joint
tenancy (with rights of survivorship), but only for redemptions of shares held
at the time of death or initial determination of permanent disability. The CDSC
or redemption fee will also be waived in the case of a total or partial
redemption of shares in connection with any mandatory distribution from a
tax-deferred retirement plan or an IRA. The waiver does not apply in the case of
a tax-free rollover or transfer of assets, other than one following a separation
from services. The shareholder must notify the Fund either directly or through
the Distributor at the time of redemption that the shareholder is entitled to a
waiver of CDSC or redemption fee. The waiver will then be granted subject to
confirmation of the shareholder's entitlement. The CDSC or redemption fee, which
may be imposed on Class A shares purchased in excess of $1 million, will also be
waived for registered investment advisers, trust companies and bank trust
departments investing on their own behalf or on behalf of their clients.

Conversion of Class B Shares

A shareholder's Class B shares will automatically convert to Class A shares in
the Fund on the first business day of the month in which the eighth anniversary
of the issuance of the Class B shares occurs, together with a pro rata portion
of all Class B shares representing dividends and other distributions paid in
additional Class B shares. The conversion of Class B shares into Class A shares
is subject to the continuing availability of an opinion of counsel or an
Internal Revenue Service ("IRS") ruling to the effect that (1) such conversion
will not constitute taxable events for federal tax purposes; and (2) the payment
of different dividends on Class A and Class B shares does not result in the
Fund's dividends or distributions constituting "preferential dividends" under
the Internal Revenue Code of 1986. The Class B shares so converted will no
longer be subject to the higher expenses borne by Class B shares. The conversion
will be effected at the relative net asset values per share of the two Classes.

DETERMINATION OF SHARE PRICE

As noted in the Prospectus, the net asset value and offering price of the Fund's
shares will be determined once daily as of the close of regular trading on the
New York Stock Exchange (normally 4:00 p.m. New York time) during each day on
which that Exchange is open for trading. As of the date of this Statement of
Additional Information, the New York Stock Exchange is closed on the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day.

Portfolio securities listed or traded on a national securities exchange or
included in the NASDAQ National Market System will be valued at the last
reported sale price on the valuation day. Securities traded on an exchange or
NASDAQ for which there has been no sale that day and other securities traded in
the over-the-counter market will be valued at the last reported bid price on the
valuation day. In cases in which securities are traded on more than one
exchange, the securities are valued on the exchange designated by or under the
authority of the Board of Directors as the primary market. Securities for which
quotations are not readily available and all other assets will be valued at
their respective fair values as determined in good faith by or under the
direction of the Board of Directors of the Company. Any assets or liabilities
initially expressed in terms of non-U.S. dollar currencies are translated into
U.S. dollars at the prevailing market rates as quoted by one or more banks or
dealers on the day of valuation.

The value of the foreign securities traded on exchanges outside the United
States is based upon the price on the exchange as of the close of business of
the exchange preceding the time of valuation (or, if earlier, at the time of the
Fund's valuation). Quotations of foreign securities in foreign currency are
converted to U.S. dollar equivalents using the foreign exchange quotation in
effect at the time net asset value is computed. The calculation of net asset
value of the Fund may not take place contemporaneously with the determination of
the prices of certain portfolio securities of foreign issuers used in such
calculation. Further, the prices of foreign securities are determined using
information derived from pricing services and other sources. Information that
becomes known to the Fund or its agents after the time that net asset value is
calculated on any business day may be assessed in determining net asset value
per share after the time of receipt of the information, but will not be used to
retroactively adjust the price of the security so determined earlier or on a
prior day. Events affecting the values of portfolio securities that occur
between the time their prices are determined and the time when the Fund's net
asset value is determined may not be reflected in the calculation of net asset
value. If events materially affecting the value of such securities occur during
such period, then these securities may be valued at fair value as determined by
the management and approved in good faith by the Board of Directors.

In computing the Fund's net asset value, all liabilities incurred or accrued are
deducted from the Fund's total assets. The resulting net assets are divided by
the number of shares of the Fund outstanding at the time of the valuation and
the result (adjusted to the nearest cent) is the net asset value per share.

The per share net asset value of Class A shares generally will be higher than
the per share net asset value of shares of the other classes, reflecting daily
expense accruals of the higher distribution fees applicable to Class B and Class
M shares. It is expected, however, that the per share net asset value of the
classes will tend to converge immediately after the payment of dividends or
distributions that will differ by approximately the amount of the expense
accrual differentials between the classes.

Orders received by dealers prior to the close of regular trading on the New York
Stock Exchange will be confirmed at the offering price computed as of the close
of regular trading on the Exchange provided the order is received by the
Distributor prior to its close of business that same day (normally 4:00 P.M.
Pacific time). It is the responsibility of the dealer to insure that all orders
are transmitted timely to the Fund. Orders received by dealers after the close
of trading on the New York Stock Exchange will be confirmed at the next computed
offering price as described in the Prospectus.

SHAREHOLDER SERVICES AND PRIVILEGES

As discussed in the Prospectus, the Fund provides a Pre-Authorized Investment
Program for the convenience of investors who wish to purchase shares of the Fund
on a regular basis. Such a Program may be started with an initial investment
($1,000 minimum) and subsequent voluntary purchases ($100 minimum) with no
obligation to continue. The Program may be terminated without penalty at any
time by the investor or the Fund. The minimum investment requirements may be
waived by the Fund for purchases made pursuant to (i) employer-administered
payroll deduction plans, (ii) profit-sharing, pension, or individual or any
employee retirement plans, or (iii) purchases made in connection with plans
providing for periodic investments in Fund shares.

For investors purchasing shares of the Fund under a tax-qualified individual
retirement or pension plan or under a group plan through a person designated for
the collection and remittance of monies to be invested in shares of the Fund on
a periodic basis, the Fund may, in lieu of furnishing confirmations following
each purchase of Fund shares, send statements no less frequently than quarterly
pursuant to the provisions of the Securities Exchange Act of 1934, as amended,
and the rules thereunder. Such quarterly statements, which would be sent to the
investor or to the person designated by the group for distribution to its
members, will be made within five business days after the end of each quarterly
period and shall reflect all transactions in the investor's account during the
preceding quarter.

All shareholders will receive a confirmation of each new transaction in their
accounts, which will also show the total number of Fund shares owned by each
shareholder, the number of shares being held in safekeeping by the Fund's
Transfer Agent for the account of the shareholder and a cumulative record of the
account for the entire year. SHAREHOLDERS MAY RELY ON THESE STATEMENTS IN LIEU
OF CERTIFICATES. CERTIFICATES REPRESENTING SHARES OF THE FUND WILL NOT BE ISSUED
UNLESS THE SHAREHOLDER REQUESTS THEM IN WRITING.

Self-Employed and Corporate Retirement Plans

For self-employed individuals and corporate investors that wish to purchase
shares of the Fund, there is available through the Fund a Prototype Plan and
Custody Agreement. The Custody Agreement provides that Investors Fiduciary Trust
Company, Kansas City, Missouri, will act as Custodian under the Plan, and will
furnish custodial services for an annual maintenance fee of $12.00 for each
participant, with no other charges. (This fee is in addition to the normal
Custodian charges paid by the Fund.) The annual contract maintenance charge may
be waived from time to time. For further details, including the right to appoint
a successor Custodian, see the Plan and Custody Agreements as provided by the
Fund. Employers who wish to use shares of the Fund under a custodianship with
another bank or trust company must make individual arrangements with such
institution.

Individual Retirement Accounts

Investors having earned income are eligible to purchase shares of the Fund under
an IRA pursuant to Section 408(a) of the Internal Revenue Code. An individual
who creates an IRA may contribute annually certain dollar amounts of earned
income, and an additional amount if there is a non-working spouse. Simple IRA
plans which employers may establish on behalf of their employees are also
available. Roth IRA plans which enable employed and self-employed individuals to
make non-deductible contributions, and, under certain circumstances, effect
tax-free withdrawals, are also available. Copies of model Custodial Account
Agreements are available from the Distributor. Investors Fiduciary Trust
Company, Kansas City, Missouri, will act as the Custodian under these model
Agreements, for which it will charge the investor an annual fee of $12.00 for
maintaining the Account (such fee is in addition to the normal custodial charges
paid by the Fund). Full details on the IRA and Simple IRA are contained in IRS
required disclosure statements, and the Custodian will not open an IRA until
seven (7) days after the investor has received such statement from the Fund. An
IRA using shares of the Fund may also be used by employers who have adopted a
Simplified Employee Pension Plan.

Purchases of Fund shares by Section 403(b) and other retirement plans are also
available. Section 403(b) plans are arrangements by a public school organization
or a charitable, educational, or scientific organization that is described in
Section 501(c)(3) of the Internal Revenue Code under which employees are
permitted to take advantage of the federal income tax deferral benefits provided
for in Section 403(b) of the Code.

It is advisable for an investor considering the funding of any retirement plan
to consult with an attorney or to obtain advice from a competent retirement plan
consultant.

Telephone Redemption and Exchange Privileges

As discussed in the Prospectus, the telephone redemption and exchange privileges
are available for all shareholder accounts; however, retirement accounts may not
utilize the telephone redemption privilege. The telephone privileges may be
modified or terminated at any time. The privileges are subject to the conditions
and provisions set forth below and in the Prospectus.

1. Telephone redemption and/or exchange instructions received in good
order before the pricing of a Fund on any day on which the New York
Stock Exchange is open for business (a "Business Day"), but not later
than 4:00 p.m. eastern time, will be processed at that day's closing
net asset value. For each exchange, the shareholder's account may be
charged an exchange fee. There is no fee for telephone redemption;
however, redemptions of Class A and Class B shares may be subject to a
contingent deferred sales charge (See "Redemption of Shares" in the
Prospectus).

2. Telephone redemption and/or exchange instructions should be made by
dialing 1-800-992-0180.

3. Pilgrim America Funds will not permit exchanges in violation of any of
the terms and conditions set forth in the Funds' Prospectus or herein.

4. Telephone redemption requests must meet the following conditions to be
accepted by Pilgrim America Funds:

(a) Proceeds of the redemption may be directly deposited into a
predetermined bank account, or mailed to the current address
on the registration. This address cannot reflect any change
within the previous thirty (30) days.

(b) Certain account information will need to be provided for
verification purposes before the redemption will be executed.

(c) Only one telephone redemption (where proceeds are being mailed
to the address of record) can be processed with in a 30 day
period.

(d) The maximum amount which can be liquidated and sent to the
address of record at any one time is $100,000.

(e) The minimum amount which can be liquidated and sent to a
predetermined bank account is $5,000.

5. If the exchange involves the establishment of a new account, the
dollar amount being exchanged must at least equal the minimum
investment requirement of the Pilgrim America Fund being acquired.

6. Any new account established through the exchange privilege will have
the same account information and options except as stated in the
Prospectus.

7. Certificated shares cannot be redeemed or exchanged by telephone but
must be forwarded to Pilgrim America at P.O. Box 419368, Kansas City,
MO 64141 and deposited into your account before any transaction may be
processed.

8. If a portion of the shares to be exchanged are held in escrow in
connection with a Letter of Intent, the smallest number of full shares
of the Pilgrim America Fund to be purchased on the exchange having the
same aggregate net asset value as the shares being exchanged shall be
substituted in the escrow account. Shares held in escrow may not be
redeemed until the Letter of Intent has expired and/or the appropriate
adjustments have been made to the account.

9. Shares may not be exchanged and/or redeemed unless an exchange and/or
redemption privilege is offered pursuant to the Funds' then-current
prospectus.

10. Proceeds of a redemption may be delayed up to 15 days or longer until
the check used to purchase the shares being redeemed has been paid by
the bank upon which it was drawn.

DISTRIBUTIONS

As noted in the Prospectus, the Fund's shareholders have the privilege of
reinvesting both income dividends and capital gains distributions, if any, in
additional shares of the same class at the then current net asset value, with no
sales charge. Alternatively, a shareholder can elect at any time to receive
dividends and/or capital gains distributions in cash. In the absence of such an
election, each purchase of shares of the Fund is made upon the condition and
understanding that the Fund's Transfer Agent is automatically the shareholder's
agent to receive his dividends and distributions upon all shares registered in
his name and to reinvest them in full and fractional shares of the Fund at the
applicable net asset value in effect at the close of business on the
reinvestment date. A shareholder may still at any time after a purchase of Fund
shares request that dividends and/or capital gains distributions be paid to him
in cash.

TAX CONSIDERATIONS

The following discussion summarizes certain U.S. federal tax considerations
incident to an investment in the Fund.

The Fund intends to qualify as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code"). To so qualify, the Fund must,
among other things: (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loaned, gains from the sale or
other disposition of stock or securities and gains from the sale or other
disposition of foreign currencies, or other income (including gains from
options, futures contracts and forward contracts) derived with respect to the
Fund's business of investing in stocks, securities or currencies; (b) diversify
its holdings so that, at the end of each quarter, (i) at least 50% of the value
of the Fund's total assets is represented by cash and cash items, U.S.
Government securities, securities of other regulated investment companies, and
other securities, with such other securities limited in respect of any one
issuer to an amount not greater in value than 5% of the Fund's total assets and
to not more than 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of the Fund's total assets in invested in
the securities (other than U.S. Government securities or securities of other
regulated investment companies) of any one issuer or of any two or more issuers
that the Fund controls and that are determined to be engaged in the same
business or similar or related businesses; and (c) distribute at least 90% of
its investment company taxable income (which includes, among other items,
dividends, interest and net short-term capital gains in excess of net long-term
capital losses) each taxable year.

The U.S. Treasury Department is authorized to issue regulations providing that
foreign currency gains that are not directly related to the Fund's principal
business of investing in stock or securities (or options and futures with
respect to stock or securities) will be excluded from the income which qualifies
for purposes of the 90% gross income requirement described above. To date,
however, no such regulations have been issued.

The status of the Fund as a regulated investment company does not involve
government supervision of management or of their investment practices, or
policies. As a regulated investment company, the Fund generally will be relieved
of liability for U.S. federal income tax on that portion of its investment
company taxable income and net realized capital gains which it distributes as
dividends to its shareholders. Amounts not distributed on a timely basis in
accordance with a calendar year distribution requirement also are subject to a
nondeductible 4% excise tax. To prevent application of the excise tax, the Fund
intends to make distributions in accordance with the calendar year distribution
requirement.

Distributions

Dividends of investment company taxable income (including net short-term capital
gains) are taxable to shareholders as ordinary income. Distributions of
investment company taxable income may be eligible for the corporate
dividends-received deduction to the extent attributable to the Fund's dividend
income from U.S. corporations and if other applicable requirements are met.
However, the alternative minimum tax applicable to corporations may reduce the
benefit of the dividends-received deduction. The Fund expects that distributions
of net capital gains (the excess of net long-term capital gains over net
short-term capital losses) designated by the Fund as capital gain dividends
should be taxable to shareholders as long-term capital gains, regardless of the
length of time the Fund's shares have been hold by a shareholder, and are not
eligible for the dividends-received deduction. Generally, dividends and
distributions are taxable to shareholders, whether received in cash or
reinvested in shares of the Fund. Any distributions that are not from the Fund's
investment company taxable income or net capital gain may be characterized as a
return of capital to shareholders or in some cases, as capital gain.
Shareholders will be notified annually as to the federal tax status of dividends
and distributions they receive and any tax withheld thereon.

Dividends, including capital gain dividends, declared in October, November or
December with a record date in such month and paid during the following January
will be treated as having been paid by the Fund and received by shareholders on
December 31 of the calendar year in which declared, rather than the calendar
year in which the dividends are actually received.

Distributions by the Fund reduce the net asset value of the Fund shares. Should
a distribution reduce the net asset value below a shareholder's cost basis, the
distribution nevertheless may be taxable to the shareholder as ordinary income
or capital gain an described above, even though, from an investment standpoint,
it may constitute a partial return of capital. In particular, investors should
be careful to consider the tax implication of buying shares just prior to a
distribution by the Fund. The price of shares purchased at that time includes
the amount of the forthcoming distribution, but the distribution will generally
be taxable to them.

Passive Foreign Investment Companies

The Fund may invest in stocks of foreign companies that are classified under the
Code as passive foreign investment companies ("PFICs"). In general, a foreign
company is classified as a PFIC if at least one-half of its assets constitute
investment-type assets or 75% or more of its gross income in investment-type
income. Under the PFIC rules, an "excess distribution" received with respect to
PFIC stock is treated as having been realized ratably over the period during
which the Fund held the PFIC stock. The Fund itself will be subject to tax on
the portion, if any, of the excess distribution that is allocated to the Fund's
holding period in prior taxable years (and an interest factor will be added to
the tax, as if the tax had actually been payable in such prior taxable years)
even though the Fund distributes the corresponding income to shareholders.
Excess distributions include any gain from the sale of PFIC stock as well an
certain distributions from a PFIC. All excess distributions are taxable as
ordinary income.

The Fund may be able to elect alternative tax treatment with respect to PFIC
stock. Under an election that currently may be available, the Fund generally
would be required to include in its gross income its share of the earnings of a
PFIC on a current basis, regardless of whether any distributions are received
from the PFIC. If this election is made, the special rules, discussed above,
relating to the taxation of excess distributions, would not apply. In addition,
another election is available that involves marking to market the Fund's PFIC
stock at the end of each taxable year, with the result that unrealized gains are
treated as though they were realized, and are reported as ordinary income; and
any mark-to-market losses, as well as losses from an actual disposition of PFIC
stock, would be reported as ordinary loss to the extent of any net
mark-to-market gains included in income in prior years.

Foreign Withholding Taxes

Income received by the Fund from sources within foreign countries may be subject
to withholding and other income or similar taxes imposed by such countries.

Sale of Shares

Upon the sale or exchange of his shares, a shareholder will realize a taxable
gain or loss depending upon his basis in the shares. Such gain or loss will be
treated as capital gain or loss if the shares are capital assets in the
shareholder's hands, and which generally may be eligible for reduced federal tax
rates, depending upon the shareholder's holding period for the shares. Any loss
realized on a sale or exchange will be disallowed to the extent that the shares
disposed of are replaced (including replacement through the reinvesting of
dividends and capital gain distributions in the Fund) within a-period of 61 days
beginning 30 days before and ending 30 days after the disposition of the shares.
In such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized by a shareholder on the sale of the Fund's
shares held by the shareholder for six months or less will be treated for
federal income tax purposes as a long-term capital loss to the extent of any
distributions or capital gain dividends received by the shareholder with respect
to such shares.

In some cases, shareholders will not be permitted to take sales charges into
account for purposes of determining the amount of gain or loss realized on the
disposition of their shares. This prohibition generally applies where (1) the
shareholder incurs a sales charge in acquiring the stock of a regulated
investment company, (2) the stock is disposed of before the 91st day after the
date on which it was acquired, and (3) the shareholder subsequently acquires
shares of the same or another regulated investment company and the otherwise
applicable sales charge is reduced or eliminated under a "reinvestment right"
received upon the initial purchase of shares of stock. In that case, the gain or
loss recognized will be determined by excluding from the tax basis of the shares
exchanged all or a portion of the sales charge incurred in acquiring those
shares. This exclusion applies to the extent that the otherwise applicable sales
charge with respect to the newly acquired shares is reduced as a result of
having incurred a sales charge initially. Sales charges affected by this rule
are treated as if they were incurred with respect to the stock acquired under
the reinvestment right. This provision may be applied to successive acquisitions
of stock.

Backup Withholding

The Fund generally will be required to withhold federal income tax at a rate of
31% ("backup withholding") from dividends paid, capital gain distributions, and
redemption proceeds to shareholders if (1) the shareholder fails to furnish the
Fund with the shareholder's correct taxpayer identification number or social
security number and to make such certifications as the Fund may require, (2) the
IRS notifies the shareholder or the Fund that the shareholder has failed to
report properly certain interest and dividend income to the IRS and to respond
to notices to that effect, or (3) when required to do so, the shareholder fails
to certify that he in not subject to backup withholding. Any amounts withheld
may be credited against the shareholder's federal income tax liability.

Other Taxes

Distributions also may be subject to state, local and foreign taxes. U.S. tax
rules applicable to foreign investors may differ significantly from those
outlined above. This discussion does not purport to deal with all of the tax
consequences applicable to shareholders. Shareholders are advised to consult
their own tax advisers for details with respect to the particular tax
consequences to them of an investment in the Fund.

PERFORMANCE INFORMATION

The Fund may, from time to time, include "total return" in advertisements or
reports to shareholders or prospective investors. Quotations of average annual
total return will be expressed in terms of the average annual compounded rate of
return of a hypothetical investment in the Fund over periods of 1, 5 and 10
years (up to the life of the Fund), calculated pursuant to the following formula
which is prescribed by the SEC:

P(1 + T)n = ERV

where:
P = a hypothetical initial payment of $1,000,
T = the average annual total return,
n = the number of years, and
ERV = the ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period.

All total return figures assume that all dividends are reinvested when paid.

From time to time, the Fund may advertise its average annual total return over
various periods of time. These total return figures show the average percentage
change in value of an investment in the Fund from the beginning date of the
measuring period. These figures reflect changes in the price of the Fund's
shares and assume that any income dividends and/or capital gains distributions
made by the Fund during the period were reinvested in shares of the Fund.
Figures will be given for one, five and ten year periods (if applicable) and may
be given for other periods as well (such as from commencement of the Fund's
operations, or on a year-by-year basis).

Quotations of yield for the Fund will be based on all investment income per
share earned during a particular 30-day period (including dividends and
interest), less expenses accrued during the period ("net investment income") and
are computed by dividing net investment income by the maximum offering price per
share on the last day of the period, according to the following formula:

a - b 6
2 [(----- + 1) - 1]
cd

where:

a = dividends and interest earned during the period,
b = expenses accrued for the period (net of reimbursements),
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the
period.

Additional Performance Quotations

Advertisements of total return will always show a calculation that includes the
effect of the maximum sales charge but may also show total return without giving
effect to that charge. Because these additional quotations will not reflect the
maximum sales charge payable, these performance quotations will be higher than
the performance quotations that reflect the maximum sales charge.

Total returns are based on past results and are not necessarily a prediction of
future performance.

Performance Comparisons

In reports or other communications to shareholders or in advertising material,
the Fund may compare the performance of its Class A, Class B, and Class M shares
with that of other mutual funds as listed in the rankings prepared by Lipper
Analytical Services, Inc., Morningstar, Inc., CDA Technologies, Inc., Value
Line, Inc. or similar independent services that monitor the performance of
mutual funds or with other appropriate indexes of investment securities. In
addition, certain indexes may be used to illustrate historic performance of
select asset classes. The performance information may also include evaluations
of the Fund published by nationally recognized ranking services and by financial
publications that are nationally recognized, such as Business Week, Forbes,
Fortune, Institutional Investor, Money and The Wall Street Journal. If the Fund
compares its performance to other funds or to relevant indexes, the Fund's
performance will be stated in the same terms in which such comparative data and
indexes are stated, which is normally total return rather than yield. For these
purposes the performance of the Fund, as well as the performance of such
investment companies or indexes, may not reflect sales charges, which, if
reflected, would reduce performance results.

The average annual total return for Class A shares of the Fund for the one-,
five-, and ten-year periods ended June 30, 1998 was ___%, ___%, and ___%,
respectively. The average annual total return for the Class B shares for the
year ended June 30, 1998 and for the period from July 17, 1995 (commencement of
operations) through June 30, 1998, was ___% and ___%, respectively. The average
annual total return for the Class M shares for the year ended June 30, 1998 and
for the period from July 17, 1995 (commencement of operations) through June 30,
1998, was ___% and ___%, respectively.

Reports and promotional literature may also contain the following information:
(i) a description of the gross national or domestic product and populations,
including but not limited to, age characteristics, of various countries and
regions in which the Fund may invest, as compiled by various organizations, and
projections of such information; (ii) the performance of worldwide equity and
debt markets; (iii) the capitalization of U.S. and foreign stock markets
prepared or published by the International Finance Corporation, Morgan Stanley
Capital International or a similar financial organization; (iv) the geographic
distribution of the Fund's portfolio; (v) the major industries located in
various jurisdictions; (vi) the number of shareholders in the Fund or other
Pilgrim America Funds and the dollar amount of the assets under management;
(vii) descriptions of investing methods such as dollar-cost averaging, best
day/worst day scenarios, etc.; (viii) comparisons of the average price to
earnings ratio, price to book ratio, price to cash flow and relative currency
valuations of the Fund and individual stocks in the Fund's portfolio,
appropriate indices and descriptions of such comparisons; (ix) quotes from the
portfolio manager of the Fund or other industry specialists; (x) lists or
statistics of certain of the Fund's holdings including, but not limited to,
portfolio composition, sector weightings, portfolio turnover rate, number of
holdings, average market capitalization, and modern portfolio theory statistics;
(xi) NASDAQ symbols for each class of shares of the Fund; and (xii) descriptions
of the benefits of working with investment professionals in selecting
investments.

In addition, reports and promotional literature may contain information
concerning the Investment Manager, Pilgrim America, Pilgrim America Group, Inc.
or affiliates of the Fund, the Investment Manager, Pilgrim America or Pilgrim
America Group, Inc. including (i) performance rankings of other funds managed by
the Investment Manager, or the individuals employed by the Investment Manager
who exercise responsibility for the day-to-day management of the Fund, including
rankings of mutual funds published by Lipper Analytical Services, Inc.,
Morningstar, Inc., CDA Technologies, Inc., or other rating services, companies,
publications or other persons who rank mutual funds or other investment products
on overall performance or other criteria; (ii) lists of clients, the number of
clients, or assets under management; (iii) information regarding the acquisition
of the Pilgrim America Funds by Pilgrim America, (iv) the past performance of
Pilgrim America and Pilgrim America Group, Inc.; (v) the past performance of
other funds managed by the Investment Manager; and (vi) information regarding
rights offerings conducted by closed-end funds managed by the Investment
Manager.

GENERAL INFORMATION

Capitalization and Voting Rights. The Company's authorized capital stock
consists of 500,000,000 shares of $.10 par value each, of which 200,000,000
shares are classified as shares of the Fund, 200,000,000 shares are classified
as shares of Pilgrim America High Yield Fund, and 100,000,000 are not
classified. All shares when issued are fully paid, non-assessable, and
redeemable. Shares have no preemptive rights. All shares have equal voting,
dividend and liquidation rights. Shares have non-cumulative voting rights, which
means that the holders of more than 50% of the shares voting for the election of
Directors can elect 100% of the Directors if they choose to do so, and in such
event the holders of the remaining shares voting for the election of Directors
will not be able to elect any person or persons to the Board of Directors.
Generally, there will not be annual meetings of shareholders.

The Board of Directors may classify or reclassify any unissued shares into
shares of any series by setting or changing in any one or more respects, from
time to time, prior to the issuance of such shares, the preferences, conversion
or other rights, voting powers, restrictions, limitations as to dividends or
qualifications of such shares. Any such classification or reclassification will
comply with the provisions of the 1940 Act. The Board of Directors may create
additional series (or classes of series) of shares without shareholder approval.
Any series or class of shares may be terminated by a vote of the shareholders of
such series or class entitled to vote or by the Directors of the Company by
written notice to shareholders of such series or class. Shareholders may remove
Directors from office by votes cast at a meeting of shareholders or by written
consent.

Custodian. The cash and securities owned by the Fund are held by Investors
Fiduciary Trust Company, 801 Pennsylvania, , Kansas City, Missouri 64105, as
Custodian, which takes no part in the decisions relating to the purchase or sale
of the Fund's portfolio securities.

Legal Counsel. Legal matters for the Fund are passed upon by Dechert Price &
Rhoads, 1775 Eye Street, N.W.., Washington, D.C. 20006.

Independent Auditors. KPMG Peat Marwick LLP, 725 South Figueroa Street, Los
Angeles, California 90017, acts as independent auditors for the Fund.

Other Information. The Company is registered with the SEC as a management
investment company. Such registration does not involve supervision of the
management or policies of the Fund by any governmental agency. The Prospectus
and this Statement of Additional Information omit certain of the information
contained in the Registration Statement filed with the Commission and copies of
such information may be obtained from the Commission upon payment of the
prescribed fee or examined at the Commission in Washington, D.C. without charge.

Investors of the Fund will be kept informed of its progress through semi-annual
reports showing diversification of portfolio, statistical data and any other
significant data, including financial statements audited by independent
certified public accountants.

FINANCIAL STATEMENTS

The financial statements of the Fund for the fiscal year ended June 30, 1998 are
incorporated herein by reference from the Fund's Annual Report to Shareholders.
Copies of the Fund's Annual Report may be obtained without charge by contacting
the Fund at Suite 1200, 40 North Central Avenue, Phoenix, Arizona 85004, (800)
992-0180.

<PAGE>

PILGRIM AMERICA HIGH YIELD FUND
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
(800) 992-0180

STATEMENT OF ADDITIONAL INFORMATION

November 1, 1998

Pilgrim America High Yield Fund (the "Fund") is a diversified series of Pilgrim
America Investment Funds, Inc., an open-end management investment company (the
"Company"). The Fund's primary investment objective is to seek a high level of
current income, with capital appreciation as a secondary investment objective.
Preservation of principal also is an important consideration in attaining these
objectives. To achieve its objectives, the Fund will invest at least 65% of its
total assets in a diversified portfolio consisting primarily of high-yielding,
fixed income securities believed by Pilgrim America Investments, Inc. (the
"Investment Manager") not to involve undue risk ("High Yield Securities"). The
Fund may invest the balance of its total assets in other securities, which
include, among other things, debt obligations, common and preferred stock not
considered High Yield Securities; securities issued by the U.S. Government, its
agencies or instrumentalities; warrants; mortgage-related securities not
considered High Yield Securities; financial futures and related options;
participation interests in floating rate loans; and debt securities of any
rating issued by foreign issuers. During periods of bond market weakness, the
Fund may establish a temporary defensive position to preserve capital by having
all or any part of its assets invested in short-term fixed income securities or
retained in cash or cash equivalents.

A Prospectus for the Fund dated November 1, 1998, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from the Fund at the address listed above. This Statement of
Additional Information is not a prospectus. It is intended to provide additional
information regarding the activities and operations of the Fund, and should be
read in conjunction with the Prospectus. Copies of the Prospectus may be
obtained at no charge by calling (800) 992-0180.

TABLE OF CONTENTS
Page

General Information and History....................................2
Management of the Fund.............................................2
Distribution Plan..................................................7
Supplemental Description of Investments and Techniques.............9
Investment Restrictions...........................................24
Portfolio Transactions............................................26
Additional Purchase and Redemption Information....................28
Determination of Share Price......................................33
Shareholder Services and Privileges...............................34
Distributions.....................................................37
Tax Considerations................................................37
Performance Information...........................................41
General Information...............................................44
Financial Statements..............................................45

<PAGE>

GENERAL INFORMATION AND HISTORY

On August 18, 1989, shareholders of the Fund approved a proposal to reorganize
the Fund from a New York common law trust to a series of Pilgrim America High
Yield Trust, a Massachusetts business trust. Effective January 18, 1990, Pilgrim
High Yield Trust changed its name to Pilgrim Strategic Investment Series
("PSIS") and the Fund became a series of PSIS. Subsequently, on April 4, 1995,
shareholders approved a proposal to reorganize the Fund from a series of PSIS to
a series of Pilgrim America Investment Funds, Inc. (the "Company"), a Maryland
corporation, pursuant to the sale by the former Pilgrim Management Corporation
of its name and its books and records related to the Fund to a subsidiary of
Express America Holdings Corporation. This reorganization, while having no
ramifications with respect to the investment objectives, policies, or
restrictions of the Fund, did result in a change of manager and distributor. See
"Management of the Fund" for a description of the manager and "Distributor" for
a description of the underwriting agreement between the Fund and the
distributor. Shares of the Fund may be purchased through independent financial
professionals, national and regional brokerage firms and other financial
institutions ("Authorized Dealers") or by completing the Fund's investment
application and having the Authorized Dealer forward it to the Fund's Transfer
Agent.

MANAGEMENT OF THE FUND

Mary A. Baldwin, Ph.D, 2525 E. Camelback Road, Suite 200, Phoenix,
Arizona 85016. (Age 59.) Director. Realtor, Coldwell Banker Success
Realty (formerly, The Prudential Arizona Realty) for more than the
last five years. Ms. Baldwin is also Vice President, United States
Olympic Committee (November 1996 - Present), and formerly Treasurer,
United States Olympic Committee (November 1992 - November 1996). Ms.
Baldwin is also a director and/or trustee of each of the funds managed
by the Investment Manager.

John P. Burke, 260 Constitution Plaza, Hartford, Connecticut 06130.
(Age 66.) Director. Commissioner of Banking, State of Connecticut
(January 1995 - Present). Mr. Burke was formerly President of Bristol
Savings Bank (August 1992 - January 1995) and President of Security
Savings and Loan (November 1989 - August 1992). Mr. Burke is also a
director and/or trustee of each of the funds managed by the Investment
Manager.

Al Burton, 2300 Coldwater Canyon, Beverly Hills, California 90210.
(Age 70.) Director. President of Al Burton Productions for more than
the last five years; formerly Vice President, First Run Syndication,
Castle Rock Entertainment (July 1992 - November 1994). Mr. Burton is
also a director and/or trustee of each of the funds managed by the
Investment Manager.

Jock Patton, 40 North Central Avenue, Phoenix, Arizona 85004. (Age
52.) Director. Private Investor. Director of Artisoft, Inc. Mr. Patton
was formerly President and Co-owner, StockVal, Inc. (April 1993 - June
1997) and a partner and director of the law firm of Streich, Lang,
P.A. (1972 - 1993). Mr. Patton is also a director and/or trustee of
each of the funds managed by the Investment Manager.

*Robert W. Stallings, 40 North Central Avenue, Suite 1200, Phoenix, AZ
85004. (Age 49.) Chairman, Chief Executive Officer, and President.
Chairman, Chief Executive Officer and President of Pilgrim America
Group, Inc. (since December 1994); Chairman, PAII (since December
1994); Director, Pilgrim America Securities, Inc. (since December
1994); Chairman, Chief Executive Officer and President of Pilgrim
America Bank and Thrift Fund, Inc., Pilgrim Government Securities
Income Fund, Inc., Pilgrim America Advisory Funds, Inc. (formerly,
Pilgrim America Masters Series, Inc.) and Pilgrim America Investment
Funds, Inc. (since April 1995). Chairman and Chief Executive Officer
of Pilgrim America Prime Rate Trust (since April 1995). Chairman and
Chief Executive Officer of Pilgrim America Capital Corporation
(formerly, Express America Holdings Corporation) ("Pilgrim America")
(since August 1990).

The Fund pays each Director who is not an interested person, be a pro rata
share, as described below, of (i) an annual retainer of $20,000; (ii) $1,500 per
quarterly and special Board meeting; (iii) $500 per committee meeting; (iv) $500
per special telephonic meeting; and (v) out of pocket expenses. During the
fiscal year ended June 30, 1998, the Fund paid an aggregate of approximately
$______ to the Directors. The pro rata share paid by the Fund is based on the
Fund's average net assets as a percentage of the average net assets of all the
funds managed by the Investment Manager for which the Directors serve in common
as directors/trustees.

Compensation of Directors. The following table sets forth information regarding
compensation of Directors by the Fund and other funds managed by the Investment
Manager for the fiscal year ended June 30, 1998. Officers of the Fund and
Directors who are interested persons of the Fund do not receive any compensation
from the Fund or any other funds managed by the Investment Manager. In the
column headed "Total Compensation From Registrant and Fund Complex Paid to
Directors," the number in parentheses indicates the total number of boards in
the fund complex on which the Director serves.

Compensation Table

Fiscal Year Ended June 30, 1998

Mary A Baldwin, Director (1)(4).......................... $ N/A N/A $
(5 boards)

John P. Burke(2)(4), Director ........................... $ N/A N/A $
(5 boards)

Al Burton, Director (3)(4)............................... $ N/A N/A $
(5 boards)

Bruce S. Foerster, Director(4)(5)........................ $ N/A N/A
(5 boards)

Jock Patton (4)(6)....................................... $ N/A N/A $
(5 boards)

Robert W. Stallings, Director and $0 N/A N/A $0
Chairman (1)(7)........................................ (5 boards)

<FN>
______________________

1 Current Board member, term commencing April 7, 1995.
2 Commenced service as Trustee on May 5, 1997.
3 Board member since 1985.
4 Member of Audit Committee.

5 Mr. Foerster resigned as a Director of the Company effective September 30,
1998.
6 Current Board member, term commencing August 28, 1995.
7 "Interested person", as defined in the Investment Company Act of 1940. As
an interested person of the Fund, Mr. Stallings will not receive any
compensation as a Director.

</FN>
</TABLE>

Officers

Michael J. Roland, Senior Vice President and Principal Financial
Officer 40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004.
(Age 40.) Senior Vice President and Chief Financial Officer, PAGI,
PAII, PASI (since June 1998) and Pilgrim America Financial (since
August, 1998). He served in same capacity from January, 1995 - April,
1997. Chief Financial Officer of Endeaver Group (April, 1997 to June,
1998).

Principal Shareholders. As of ________________,1998, the Directors and officers
of the Fund as a group owned less than 1% of any class of the Fund's outstanding
shares. As of_____________,1998, to the knowledge of Management, no person owned
beneficially or of record more than 5% of the outstanding shares of any class of
the Funds, except with respect to [TO BE PROVIDED BY AMENDMENT]

Investment Manager. The Investment Manager serves as investment manager to the
Fund and has overall responsibility for the management of the Fund. The
Investment Management Agreement between the Fund and the Investment Manager
requires the Investment Manager to oversee the provision of all investment
advisory and portfolio management services for the Fund. The Investment Manager,
which was organized in December 1994, is registered as an investment adviser
with the SEC and serves as investment adviser to four other registered
investment companies (or series thereof) as well as privately managed accounts.
As of , the Investment Manager had assets under management of approximately $___
billion.

As compensation for its services, the Investment Manager is paid monthly an
annual fee at the rate of 0.60% of the average daily net asset value of the
Fund. Prior to April 16, 1998, the Investment Management fee was an annual fee
at a rate of 0.75% on the first $25 million in net assets, 0.625% on net assets
over $25 million up to $100 million, 0.50% on net assets over $100 million up to
$500 million, and 0.40% for net assets over $500 million. For the fiscal years
ended June 30, 1998, 1997 and 1996, the Fund paid management fees to the current
Investment Manager of approximately $_______, $332,032 and $127,000,
respectively.

The Investment Manager has entered into an expense limitation agreement with the
Company, pursuant to which the Investment Manager has agreed to waive or limit
its fees and to assume other expenses so that the total annual ordinary
operating expenses of the Fund (which excludes interest, taxes, brokerage
commissions, extraordinary expenses such as litigation, other expenses not
incurred in the ordinary course of such Fund's business, expenses of any counsel
or other persons or services retained by the Company's directors who are not
"interested persons" (as defined in the 1940 Act) of the Investment Manager, and
amounts payable pursuant to a plan adopted in accordance with Rule 12b-1 under
the 1940 Act) do not exceed 0.75%.

The expense limitation agreement provides that the expense limitation shall
continue until December 31, 1998. The Investment Manager may extend, but may not
shorten, the period of the limitation without the consent of the Fund, so long
as the extension is at the same expense limitation amount discussed above. The
Fund will at a later date reimburse the Investment Manager for management fees
waived and other expenses assumed by the Investment Manager during the previous
36 months, but only if, after such reimbursement, the Fund's expense ratio does
not exceed the percentage described above. The Investment Manager will only be
reimbursed for fees waived or expenses assumed after the effective date of the
expense limitation agreement. The expense limitation agreement will terminate
automatically upon termination of the respective investment management agreement
with the Investment Manager, and may be terminated by the Investment Manager or
the Fund upon 90 days written notice.

Prior to the expense limitation agreement described above, the Investment
Manager voluntarily agreed to waive all or a portion of its fee and to reimburse
operating expenses of the Fund, excluding distribution fees, interest, taxes,
brokerage and extraordinary expenses, to 0.75%. For the fiscal years ended June
30, 1998, June 30, 1997 and June 30, 1996, the voluntary fee reduction resulted
in a waiver of $________, $219,739 and $127,903, respectively.

Distributor. Shares of the Fund are distributed by Pilgrim America Securities,
Inc. (the "Distributor") pursuant to an Underwriting Agreement. The Underwriting
Agreement requires the Distributor to use its best efforts on a continuing basis
to solicit purchases of shares of the Fund. The Fund and the Distributor have
agreed to indemnify each other against certain liabilities. At the discretion of
the Distributor, all sales charges may at times be reallowed to an Authorized
Dealer. If 90% or more of the sales commission is reallowed, such Authorized
Dealer may be deemed to be an "underwriter" as that term is defined under the
Securities Act of 1933, as amended. The Underwriting Agreement will remain in
effect from year to year only if its continuance is approved annually by a
majority of the Board of Directors who are not parties to such agreement or
"interested persons" of any such party and must be approved either by votes of a
majority of the Directors or a majority of the outstanding voting securities of
the Fund. See the Prospectus for information on how to purchase and sell shares
of the Fund, and the charges and expenses associated with an investment. The
Distributor, like the Investment Manager, is a wholly-owned subsidiary of
Pilgrim America Group, Inc., which is a wholly-owned subsidiary of Pilgrim
America Capital Corporation.

DISTRIBUTION PLAN

The Fund has a distribution plan pursuant to Rule 12b-1 under the 1940 Act
applicable to each class of shares of the Fund ("Rule 12b-1 Plan"). The Fund
intends to operate the Rule 12b-1 Plan in accordance with its terms and the
National Association of Securities Dealers, Inc. rules concerning sales charges.
Under the Rule 12b-1 Plan, the Distributor may be entitled to payment each month
in connection with the offering, sale, and shareholder servicing of Class A,
Class B, and Class M shares in amounts not to exceed the following: with respect
to Class A shares at an annual rate of up to 0.35% of the average daily net
assets of the Class A shares of the Fund; with respect to Class B shares at an
annual rate of up to 1.00% of the average daily net assets of the Class B shares
of the Fund; and with respect to Class M shares at an annual rate of up to 1.00%
of the average daily net assets of the Class M shares of the Fund. The Board of
Directors has approved under the Rule 12b-1 Plan payments of the following
amounts to the Distributor will be made each month in connection with the
offering, sale, and shareholder servicing of Class A, Class B, and Class M
shares as follows: (i) with respect to Class A shares at an annual rate equal to
0.25% of the average daily net assets of the Class A shares of the Fund; (ii)
with respect to Class B shares at an annual rate equal to 1.00% of the average
daily net assets of the Class B shares of the Fund; and (iii) with respect to
Class M shares at an annual rate equal to 0.75% of the average daily net assets
of the Class M shares of the Fund. Of these amounts, fees equal to an annual
rate of 0.25% of the average daily net assets of the Fund are for shareholder
servicing for each of the classes.

Under the Rule 12b-1 Plan, ongoing payments will be made on a quarterly basis to
Authorized Dealers for both distribution and shareholder servicing at the annual
rate of 0.25%, 0.25%, and 0.40% of the Fund's average daily net assets of Class
A, Class B, and Class M shares, respectively, that are registered in the name of
that Authorized Dealer as nominee or held in a shareholder account that
designates that Authorized Dealer as the dealer of record. Rights to these
ongoing payments begin to accrue in the 13th month following a purchase of Class
A or B shares and in the 1st month following a purchase of Class M shares. These
fees may be used to cover the expenses of the Distributor primarily intended to
result in the sale of Class A, Class B, and Class M shares of the Fund,
including payments to Authorized Dealers for selling shares of the Fund and for
servicing shareholders of these classes of the Fund. Activities for which these
fees may be used include: preparation and distribution of advertising materials
and sales literature; expenses of organizing and conducting sales seminars;
overhead of the Distributor; printing of prospectuses and statements of
additional information (and supplements thereto) and reports for other than
existing shareholders; payments to dealers and others that provide shareholder
services; and costs of administering the Rule 12b-1 Plan.

In the event a Rule 12b-1 Plan is terminated in accordance with its terms, the
obligations of the Fund to make payments to the Distributor pursuant to the Rule
12b-1 Plan will cease and the Fund will not be required to make any payments for
expenses incurred after the date the Plan terminates. The Distributor will be
reimbursed for its actual expenses incurred under the Rule 12b-1 Plan with
respect to the Class A shares. With respect to the Class B shares and Class M
shares, the Distributor will receive payment without regard to actual
distribution expenses it incurs.

The Rule 12b-1 Plan has been approved by the Board of Directors, including all
the Directors who are not interested persons of the Fund as defined in the 1940
Act, and by the Fund's shareholders. Each Rule 12b-1 Plan must be renewed
annually by the Board of Directors, including a majority of the Directors who
are not interested persons of the Fund and who have no direct or indirect
financial interest in the operation of the Rule 12b-1 Plan, cast in person at a
meeting called for that purpose. It is also required that the selection and
nomination of such Directors be committed to the Directors who are not
interested persons. The Rule 12b-1 Plan and any distribution or service
agreement may be terminated as to a Fund at any time, without any penalty, by
such Directors or by a vote of a majority of the Fund's outstanding shares on 60
days' written notice. The Distributor or any Authorized Dealer may also
terminate its respective distribution or service agreement at any time upon
written notice.

In approving each Rule 12b-1 Plan, the Board of Directors has determined that
differing distribution arrangements in connection with the sale of new shares of
the Fund is necessary and appropriate in order to meet the needs of different
potential investors. Therefore, the Board of Directors, including the Directors
who are not interested persons of the Fund, concluded that, in the exercise of
their reasonable business judgment and in light of their fiduciary duties, there
is a reasonable likelihood that the Rule 12b-1 Plan, as tailored to each class
of the Fund, will benefit the Fund and the shareholders.

Total distribution expenses incurred by the Distributor for the costs of
promotion and distribution of the Fund's Class A shares for the fiscal year
ended June 30, 1998 were $____, including expenses for: advertising - $____;
salaries and commissions - $____; printing, postage, and handling - $____;
brokers' servicing fees - $____ and miscellaneous and other promotional
activities - $____. Total distribution expenses incurred by the Distributor for
the costs of promotion and distribution of the Fund's Class B shares for the
fiscal year ended June 30, 1998 were $____, including expenses for: advertising
- -- $____; salaries and commissions -- $____; printing, postage, and handling --
$____; brokers' servicing fees -- $____; and miscellaneous and other promotional
activities -- $____. Total distribution expenses incurred by the Distributor for
the costs of promotion and distribution of the Fund's Class M shares for the
fiscal year ended June 30, 1998 were $____, including expenses for: advertising
- -- $____; salaries and commissions -- $____; printing, postage, and handling --
$____; brokers' servicing fees -- $____; and miscellaneous and other promotional
activities -- $____. Of the total amount incurred by the Distributor during the
fiscal year ended June 30, 1998, $____ was for the costs of personnel of the
Distributor and its affiliates involved in the promotion and distribution of the
Fund's shares.

The sales charge retained by the Distributor and the commissions allowed to
selling dealers are not an expense of the Fund and have no effect on the net
asset value of the Fund. During the fiscal years ended June 30, 1998, 1997 and
1996, the Distributor received commissions, after allowance to dealers on the
sale of the Fund's shares, of $_______, $100,481 and $1,125, respectively, or
approximately ____%, 6.28% and 1.09%, respectively, of total commissions
assessed on purchases of the Fund.

SUPPLEMENTAL DESCRIPTION OF INVESTMENTS AND TECHNIQUES

The following discussion of investment policies supplements the Fund's
investment objectives and policies set forth in the Prospectus under the heading
"Investment Objectives and Policies."

High Yield Securities

High Yield Securities are those rated lower than Baa by Moody's or BBB by S&P.
These securities tend to have speculative characteristics or are speculative,
and generally involve more risk of loss of principal and income than
higher-rated securities. Also, their yields and market values tend to fluctuate
more. Fluctuations in value do not affect the cash income from the securities,
but are reflected in the Fund's net asset value. The greater risks and
fluctuations in yield and value occur, in part, because investors generally
perceive issuers of lower-rated and unrated securities to be less creditworthy.

Many fixed income securities may present risks based on payment expectations.
For example, a fixed income security may contain redemption or call provisions.
These features allow an issuer to call, or buy back, these securities.
Typically, an issuer will exercise a redemption or call provision when interest
rates decline, in order to take advantage of less expensive financing. Such a
call or redemption is usually made at par or at a premium to par. The Fund then
would be forced to replace a called security with a lower yielding security,
thereby decreasing the Fund's rate of return.

High Yield Securities are subject to special risks. These risks cannot be
eliminated, but may be reduced significantly through a careful analysis of
prospective portfolio securities and through diversification. The Fund, by
pooling the funds of many investors, gives each shareholder an opportunity to
participate in the High Yield Securities market with a relatively small
investment. The size and volume of the Fund's portfolio transactions frequently
enable it to obtain better net prices and a resulting higher net yield to
shareholders. In addition, the Fund may further increase its income (see "Option
Writing").

As with any other investment, there is no assurance that the Fund will achieve
its objectives.

The yields earned on High Yield Securities generally are related to the quality
ratings assigned by recognized rating agencies. The medium- to lower-rated and
unrated securities in which the Fund invests tend to offer higher yields than
those of other securities with the same maturities because of the additional
risks associated with them. These risks include:

High Yield Bond Market. A severe economic downturn or increase in interest rates
might increase defaults in High Yield Securities issued by highly leveraged
companies. An increase in the number of defaults could adversely affect the
value of all outstanding High Yield Securities, thus disrupting the market for
such securities.

Sensitivity to interest rate and economic changes. High Yield Securities are
more sensitive to adverse economic changes or individual corporate developments
but less sensitive to interest rate changes than are Treasury or investment
grade bonds. As a result, when interest rates rise, causing bond prices to fall,
the value of high yield debt bonds tend not to fall as much as Treasury or
investment grade corporate bonds. Conversely when interest rates fall, high
yield bonds tend to underperform Treasury and investment grade corporate bonds
because high yield bond prices tend not to rise as much as the prices of these
bonds.

The financial stress resulting from an economic downturn or adverse corporate
developments could have a greater negative effect on the ability of issuers of
High Yield Securities to service their principal and interest payments, to meet
projected business goals and to obtain additional financing than on more
creditworthy issuers. Holders of High Yield Securities could also be at greater
risk because High Yield Securities are generally unsecured and subordinate to
senior debt holders and secured creditors. If the issuer of a High Yield
Security owned by the Fund defaults, the Fund may incur additional expenses to
seek recovery. In addition, periods of economic uncertainty and changes can be
expected to result in increased volatility of market prices of High Yield
Securities and the Fund's net asset value. Furthermore, in the case of High
Yield Securities structured as zero coupon or pay-in-kind securities, their
market prices are affected to a greater extent by interest rate changes and
thereby tend to be more speculative and volatile than securities which pay in
cash.

Payment Expectations. High Yield Securities present risks based on payment
expectations. For example, High Yield Securities may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, the Fund may have to replace the security with a lower yielding
security, resulting in a decreased return for investors. Also, the value of High
Yield Securities may decrease in a rising interest rate market. In addition,
there is a higher risk of non-payment of interest and/or principal by issuers of
High Yield Securities than in the case of investment grade bonds.

Liquidity and Valuation Risks. Lower-rated bonds are typically traded among a
smaller number of broker-dealers rather than in a broad secondary market.
Purchasers of High Yield Securities tend to be institutions, rather than
individuals, a factor that further limits the secondary market. To the extent
that no established retail secondary market exists, many High Yield Securities
may not be as liquid as Treasury and investment grade bonds. The ability of the
Company's Board of Directors to value or sell High Yield Securities will be
adversely affected to the extent that such securities are thinly traded or
illiquid. Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of High Yield
Securities more than other securities, especially in a thinly-traded market. To
the extent the Fund owns illiquid or restricted High Yield Securities, these
securities may involve special registration responsibilities, liabilities and
costs, and liquidity and valuation difficulties.

Zero Coupon and Pay-In-Kind Securities. The Fund may invest in zero coupon and
pay-in-kind securities, which do not pay interest in cash. In the event of a
default, the Fund may receive no return on its investment.

Taxation. Special tax consideration are associated with investing in High Yield
Securities structured as zero coupon or pay-in-kind securities. The Fund reports
the interest on these securities as income even though it receives no cash
interest until the security's maturity or payment date.

Limitations of Credit Ratings. The credit ratings assigned to High Yield
Securities may not accurately reflect the true risks of an investment. Credit
ratings typically evaluate the safety of principal and interest payments, rather
than the market value risk of High Yield Securities. In addition, credit
agencies may fail to adjust credit ratings to reflect rapid changes in economic
or company conditions that affect a security's market value. Although the
ratings of recognized rating services such as Moody's and S&P are considered,
the Investment Manager primarily relies on its own credit analysis, which
includes a study of existing debt, capital structure, ability to service debts
and to pay dividends, the issuer's sensitivity to economic conditions, its
operating history and the current trend of earnings. Thus, the achievement of
the Fund's investment objective may be more dependent on the Investment
Manager's own credit analysis than might be the case for a fund which invests in
higher quality bonds. The Investment Manager continually monitors the
investments in the Fund's portfolio and carefully evaluates whether to dispose
of or retain High Yield Securities whose credit ratings have changed. The Fund
may retain a security whose rating has been changed.

Congressional Proposals. New laws and proposed new laws may have a negative
impact on the market for High Yield Securities. As examples, recent legislation
requires federally-insured savings and loan associations to divest themselves of
their investments in High Yield Securities and pending proposals are designed to
limit the use of, or tax and eliminate other advantages of, High Yield
Securities. Any such proposals, if enacted, could have a negative effect on the
Fund's net asset value.

Option Writing

The Fund may write only covered call option contracts. Currently, the principal
exchanges on which such options may be written are the Chicago Board Option
Exchange and the American, Philadelphia and Pacific Stock Exchanges. In
addition, and in certain instances, the Fund may purchase and sell options in
the over-the-counter market ("OTC Options"). The Fund's ability to close option
positions established in the over-the-counter market may be more limited than in
the case of exchange-traded options. The writing of option contracts is a highly
specialized activity that involves investment techniques and risks different
from those ordinarily associated with investment companies. A call option gives
the purchaser of the option the right to buy the underlying security from the
writer at the exercise price at any time prior to the expiration of the
contract, regardless of the market price of the security during the option
period. The premium paid to the writer is the consideration for undertaking the
obligations under the option contract. The writer forgoes the opportunity to
profit from an increase in the market price of the underlying security above the
exercise price so long as the option remains open and covered, except insofar as
the premium represents such a profit.

The Fund may purchase options only to close out a position. In order to close
out a position, the Fund will make a "closing purchase transaction"-- the
purchase of a call option on the same security with the same exercise price and
expiration date as the call option that it has previously written on any
particular security. The Fund will effect a closing purchase transaction so as
to close out any existing call option on a security that it intends to sell. The
Fund will realize a profit or loss from a closing purchase transaction if the
amount paid to execute a closing purchase transaction is less or more than the
amount received from the sale thereof. In determining the term of any option
written, the Fund will consider the Internal Revenue Code's limitations on the
sale or disposition of securities held for less than three months in order to
maintain its status as a regulated investment company.

The staff of the Securities and Exchange Commission (the "SEC") has taken the
position that purchased over-the-counter options ("OTC Options") and the assets
used as cover for written OTC Options are illiquid securities. The Fund will
write OTC Options only with primary U.S. Government Securities dealers
recognized by the Board of Governors of the Federal Reserve System or member
banks of the Federal Reserve System ("primary dealers"). In connection with
these special arrangements, the Fund intends to establish standards for the
creditworthiness of the primary dealers with which it may enter into OTC Option
contracts and those standards, as modified from time to time, will be
implemented and monitored by the Investment Manager. Under these special
arrangements, the Fund will enter into contracts with primary dealers that
provide that the Fund has the absolute right to repurchase an option it writes
at any time at a repurchase price which represents the fair market value, as
determined in good faith through negotiation between the parties, but that in no
event will exceed a price determined pursuant to a formula contained in the
contract. Although the specific details of the formula may vary between
contracts with different primary dealers, the formula will generally be based on
a multiple of the premium received by the Fund for writing the option, plus the
amount, if any, by which the option is "in-the-money." The formula will also
include a factor to account for the difference between the price of the security
and the strike price of the option if the option is written "out-of-the-money."
"Strike price" refers to the price at which an option will be exercised. "Cover
assets" refers to the amount of cash or liquid assets that must be segregated to
collateralize the value of the futures contracts written by the Fund. Under such
circumstances, the Fund will treat as illiquid that amount of the cover assets
equal to the amount by which the formula price for the repurchase of the option
is greater than the amount by which the market value of the security subject to
the option exceeds the exercise price of the option (the amount by which the
option is "in-the-money"). Although each agreement will provide that the Fund's
repurchase price shall be determined in good faith (and that it shall not exceed
the maximum determined pursuant to the formula), the formula price will not
necessarily reflect the market value of the option written. Therefore, the Fund
might pay more to repurchase the OTC Option contract than the Fund would pay to
close out a similar exchange traded option.

The Fund will receive a premium (less any commissions) from the writing of such
contracts, and it is believed that the total return to the Fund can be increased
through such premiums consistent with the Fund's investment objectives.
Generally, the Fund expects that options written by it will be conducted on
recognized securities exchanges.

In determining the Fund's net asset value, the current market value of any
option written by the Fund is subtracted from net asset value. If the current
market value of the option exceeds the premium received by the Fund, the excess
represents an unrealized loss, and, conversely, if the premium exceeds the
current market value of the option, such excess would be unrealized gain.

Financial Futures Contracts and Related Options

The Fund may use financial futures contracts and related options to hedge
against changes in the market value of its portfolio securities or securities
that it intends to purchase. Hedging is accomplished when an investor takes a
position in the futures market opposite to his cash market position. There are
two types of hedges -long (or buying) and short (or selling) hedges.
Historically, prices in the futures market have tended to move in concert with
cash market prices, and prices in the futures market have maintained a fairly
predictable relationship to prices in the cash market. Thus, a decline in the
market value of securities in the Fund's portfolio may be protected against to a
considerable extent by gains realized on futures contracts sales. Similarly, it
is possible to protect against an increase in the market price of securities
that the Fund may wish to purchase in the future by purchasing futures
contracts.

The Fund may purchase or sell any financial futures contracts which are traded
on a recognized exchange or board of trade. Financial futures contracts consist
of interest rate futures contracts and securities index futures contracts. A
public market presently exists in interest rate futures contracts covering
long-term U.S. Treasury bonds, U.S. Treasury notes, three-month U.S. Treasury
bills and GNMA certificates. Securities index futures contracts are currently
traded with respect to the Standard & Poor's 500 Composite Stock Price Index and
such other broad-based stock market indices as the New York Stock Exchange
Composite Stock Index and the Value Line Composite Stock Price Index. A clearing
corporation associated with the exchange or board of trade on which a financial
futures contract trades assumes responsibility for the completion of
transactions and also guarantees that open futures contracts will be performed.

An interest rate futures contract obligates the seller of the contract to
deliver, and the purchaser to take delivery of, the interest rate securities
called for in the contract at a specified future time and at a specified price.
A stock index assigns relative values to the common stocks included in the
index, and the index fluctuates with changes in the market values of the common
stocks so included. A stock index futures contract is an agreement pursuant to
which two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the stock index value at
the close of the last trading day of the contract and the price at which the
futures contract is originally struck. An option on a financial futures contract
gives the purchaser the right to assume a position in the contract (a long
position if the option is a call and short position if the option is a put) at a
specified exercise price at any time during the period of the option.

In contrast to the situation when the Fund purchases or sells a security, no
security is delivered or received by the Fund upon the purchase or sale of a
financial futures contract. Initially, the Fund will be required to deposit in a
segregated account with its custodian bank an amount of cash and/or liquid
assets. This amount is known as initial margin and is in the nature of a
performance bond or good faith deposit on the contract. The current initial
margin deposit required per contract is approximately 5% of the contract amount.
Brokers may establish deposit requirements higher than this minimum. Subsequent
payments, called variation margin, will be made to and from the account on a
daily basis as the price of the futures contract fluctuates. This process is
known as marking to market. At the time of purchase of a futures contract or a
call option on a futures contract, an amount of cash, U. S. Government
securities or other appropriate high-grade securities equal to the market value
of the futures contract minus the Fund's initial margin deposit with respect
thereto will be deposited in a segregated account with the Fund's custodian bank
to collateralize fully the position and thereby ensure that it is not leveraged.
The extent to which the Fund may enter into financial futures contracts and
related options may also be limited by the requirements of the Internal Revenue
Code for qualification as a regulated investment company.

The writer of an option on a futures contract is required to deposit margin
pursuant to requirements similar to those applicable to futures contracts. Upon
exercise of an option on a futures contract, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's margin
account. This amount will be equal to the amount by which the market price of
the futures contract at the time of exercise exceeds, in the case of a call, or
is less than, in the case of a put, the exercise price of the option on the
futures contract.

Although financial futures contracts by their terms call for actual delivery or
acceptance of securities, in most cases the contracts are closed out before the
settlement date without the making or taking of delivery. Closing out is
accomplished by effecting an offsetting transaction. A futures contract sale is
closed out by effecting a futures contract purchase for the same aggregate
amount of securities and the same delivery date. If the sale price exceeds the
offsetting purchase price, the seller immediately would be paid the difference
and would realize a gain. If the offsetting purchase price exceeds the sale
price, the seller immediately would pay the difference and would realize a loss.
Similarly, a futures contract purchase is closed out by effecting a futures
contract sale for the same securities and the same delivery date. If the
offsetting sale price exceeds the purchase price, the purchaser would realize a
gain, whereas if the purchase price exceeds the offsetting sale price, the
purchaser would realize a loss.

The Fund will pay commissions on financial futures contracts and related options
transactions. These commissions may be higher than those that would apply to
purchases and sales of securities directly.

Limitations on Futures Contracts and Related Options. The Fund may not engage in
transactions in financial futures contracts or related options for speculative
purposes but only as a hedge against anticipated changes in the market value of
its portfolio securities or securities that it intends to purchase. The Fund may
not purchase or sell financial futures contracts or related options if,
immediately thereafter, the sum of the amount of initial margin deposits on the
Fund's existing futures and related options positions and the premiums paid for
related options would exceed 2% of the market value of the Fund's total assets
after taking into account unrealized profits and losses on any such contracts.
At the time of purchase of a futures contract or a call option on a futures
contract, an amount of cash, U.S. Government securities or other appropriate
high-grade debt obligations equal to the market value of the futures contract
minus the Fund's initial margin deposit with respect thereto will be deposited
in a segregated account with the Fund's custodian bank to collateralize fully
the position and thereby ensure that it is not leveraged.

The extent to which the Fund may enter into financial futures contracts and
related options also may be limited by the requirements of the Internal Revenue
Code for qualification as a regulated investment company. See "Federal Tax
Treatment of Dividends and Distributions."

Risks Relating to Futures Contracts and Related Options. Positions in futures
contracts and related options may be closed out only on an exchange that
provides a secondary market for such contracts or options. The Fund will enter
into an option or futures position only if there appears to be a liquid
secondary market. However, there can be no assurance that a liquid secondary
market will exist for any particular option or futures contract at any specific
time. Thus, it may not be possible to close out a futures or related option
position. In the case of a futures position, in the event of adverse price
movements the Fund would continue to be required to make daily margin payments.
In this situation, if the Fund has insufficient cash to meet daily margin
requirements it may have to sell portfolio securities at a time when it may be
disadvantageous to do so. In addition, the Fund may be required to take or make
delivery of the securities underlying the futures contracts it holds. The
inability to close out futures positions also could have an adverse impact on
the Fund's ability to hedge its portfolio effectively.

There are several risks in connection with the use of futures contracts as a
hedging device. While hedging can provide protection against an adverse movement
in market prices, it can also preclude a hedger's opportunity to benefit from a
favorable market movement. In addition, investing in futures contracts and
options on futures contracts will cause the Fund to incur additional brokerage
commissions and may cause an increase in the Fund's portfolio turnover rate.

The successful use of futures contracts and related options also depends on the
ability of the Investment Manager to forecast correctly the direction and extent
of market movements within a given time frame. To the extent market prices
remain stable during the period a futures contract or option is held by the Fund
or such prices move in a direction opposite to that anticipated, the Fund may
realize a loss on the hedging transaction that is not offset by an increase in
the value of its portfolio securities. As a result, the Fund's return for the
period may be less than if it had not engaged in the hedging transaction.

Utilization of futures contracts by the Fund involves the risk of imperfect
correlation in movements in the price of futures contracts and movements in the
price of the securities that are being hedged. If the price of the futures
contract moves more or less than the price of the securities being hedged, a
Fund will experience a gain or loss that will not be completely offset by
movements in the price of the securities. It is possible that, where the Fund
has sold futures contracts to hedge its portfolio against a decline in the
market, the market may advance and the value of securities held in the Fund's
portfolio may decline. If this occurred, the Fund would lose money on the
futures contract and would also experience a decline in value in its portfolio
securities. Where futures are purchased to hedge against a possible increase in
the prices of securities before the Fund is able to invest its cash (or cash
equivalents) in securities (or options) in an orderly fashion, it is possible
that the market may decline; if the Fund then determines not to invest in
securities (or options) at that time because of concern as to possible further
market decline or for other reasons, the Fund will realize a loss on the futures
that would not be offset by a reduction in the price of the securities
purchased.

The market prices of futures contracts may be affected if participants in the
futures market elect to close out their contracts through off-setting
transactions rather than to meet margin deposit requirements. In such a case,
distortions in the normal relationship between the cash and futures markets
could result. Price distortions could also result if investors in futures
contracts opt to make or take delivery of the underlying securities rather than
to engage in closing transactions due to the resultant reduction in the
liquidity of the futures market. In addition, due to the fact that, from the
point of view of speculators, the deposit requirements in the futures markets
are less onerous than margin requirements in the cash market, increased
participation by speculators in the futures market could cause temporary price
distortions. Due to the possibility of price distortions in the futures market
and because of the imperfect correlation between movements in the prices of
securities and movements in the prices of futures contracts, a correct forecast
of market trends may still not result in a successful transaction.

Compared to the purchase or sale of futures contracts, the purchase of put or
call options on futures contracts involves less potential risk for the Fund
because the maximum amount at risk is the premium paid for the options plus
transaction costs. However, there may be circumstances when the purchase of an
option on a futures contract would result in a loss to the Fund while the
purchase or sale of the futures contract would not have resulted in a loss, such
as when there is no movement in the price of the underlying securities.

Mortgage-Related Securities

The Fund may invest in certain types of mortgage related securities. One type of
mortgage-related security includes certificates that represent pools of mortgage
loans assembled for sale to investors by various governmental and private
organizations. These securities provide a monthly payment, which consists of
both an interest and a principal payment that is in effect a "pass-through" of
the monthly payment made by each individual borrower on his or her residential
mortgage loan, net of any fees paid to the issuer or guarantor of such
securities. Additional payments are caused by repayments of principal resulting
from the sale of the underlying residential property, refinancing, or
foreclosure, net of fees or costs that may be incurred. Some certificates (such
as those issued by the Government National Mortgage Association) are described
as "modified pass-through." These securities entitle the holder to receive all
interest and principal payments owed on the mortgage pool, net of certain fees,
regardless of whether the mortgagor actually makes the payment.

A major governmental guarantor of pass-through certificates is the Government
National Mortgage Association ("GNMA"). GNMA guarantees, with the full faith and
credit of the United States government, the timely payments of principal and
interest on securities issued by institutions approved by GNMA (such as savings
and loan institutions, commercial banks and mortgage bankers) are backed by
pools of FHA-insured or VA-guaranteed mortgages. Other governmental guarantors
(but not backed by the full faith and credit of the United States Government)
include the Federal National Mortgage Association ("FNMA") and the Federal Home
Loan Mortgage Corporation ("FHLMC"). FNMA purchases residential mortgages from a
list of approved seller/services that include state and federally chartered
savings and loan associations, mutual saving banks, commercial banks, credit
unions and mortgage bankers.

GNMA Certificates. Certificates of the GNMA ("GNMA Certificates") evidence an
undivided interest in a pool of mortgage loans. GNMA Certificates differ from
bonds, in that principal is paid back monthly as payments of principal,
including prepayments, on the mortgages in the underlying pool are passed
through to holders of GNMA Certificates representing interests in the pool,
rather than returned in a lump sum at maturity. The GNMA Certificates that the
Fund may purchase are the "modified pass-through" type. "Modified pass-through"
GNMA Certificates entitle the holder to receive a share of all interest and
principal payments paid or owed to the mortgage pool, net of fees paid or due to
the "issuer" and GNMA regardless of whether or not the mortgagor actually makes
the payment.

GNMA Guarantee. The National Housing Act authorizes GNMA to guarantee the timely
payment of principal and interest on securities backed by a pool of mortgages
insured by the Federal Housing Administration ("FHA") or the Farmers' Home
Administration ("FMHA") or guaranteed by the Veterans Administration ("VA").
GNMA is also empowered to borrow without limitation from the U.S. Treasury, if
necessary, to make payments required under its guarantee.

Life of GNMA Certificates. The average life of a GNMA Certificate is likely to
be substantially less than the stated maturity of the mortgages underlying the
securities. Prepayments of principal by mortgagors and mortgage foreclosures
will usually result in the return of the greater part of principal investment
long before the maturity of the mortgages in the pool. Foreclosures impose no
risk of loss of the principal balance of a Certificate, because of the GNMA
guarantee, but foreclosure may impact the yield to shareholders because of the
need to reinvest proceeds of foreclosure. As prepayment rates of individual
mortgage pools vary widely, it is not possible to predict accurately the average
life of a particular issue of GNMA Certificates. However, statistics published
by the FHA indicate that the average life of single family dwelling mortgages
with 25 to 30-year maturities, the type of mortgages backing the vast majority
of GNMA Certificates, is approximately 12 years. Prepayments are likely to
increase in periods of falling interest rates. It is customary to treat GNMA
Certificates as 30-year mortgage-backed securities that prepay fully in the
twelfth year.

Yield Characteristics of GNMA Certificates. The coupon rate of interest of GNMA
Certificates is lower than the interest rate paid on the VA-guaranteed or
FHA-insured mortgages underlying the certificates, by the amount of the fees
paid to GNMA and the issuer. The coupon rate by itself, however, does not
indicate the yield that will be earned on GNMA Certificates. First, GNMA
Certificates may be issued at a premium or discount rather than at par, and,
after issuance, GNMA Certificates may trade in the secondary market at a premium
or discount. Second, interest is earned monthly, rather than semi-annually as
with traditional bonds; monthly compounding raises the effective yield earned.
Finally, the actual yield of a GNMA Certificate is influenced by the prepayment
experience of the mortgage pool underlying it. For example, if interest rates
decline, prepayments may occur faster than had been originally projected and the
yield to maturity and the investment income of the Fund would be reduced.

FHLMC Securities. "FHLMC" is a federally chartered corporation created in 1970
through enactment of Title III of the Emergency Home Finance Act of 1970. Its
purpose is to promote development of a nationwide secondary market in
conventional residential mortgages. The FHLMC issues two types of mortgage
pass-through securities, mortgage participation certificates ("PCs") and
guaranteed mortgage certificates ("GMCs"). PCs resemble GNMA Certificates in
that each PC represents a pro rata share of all interest and principal payments
made or owed on the underlying pool. The FHLMC guarantees timely payment of
interest on PCs and the ultimate payment of principal. Like GNMA Certificates,
PCs are assumed to be prepaid fully in their twelfth year. GMCs also represent a
pro rata interest in a pool of mortgages. However, these instruments pay
interest annually and return principal once a year in guaranteed minimum
payments. The expected average life of these securities is approximately ten
years.

FNMA Securities. "FNMA" is a federally chartered and privately owned corporation
that was established in 1938 to create a secondary market in mortgages insured
by the FHA. It was originally established as a government agency and was
transformed into a private corporation in 1968. FNMA issues guaranteed mortgage
pass-through certificates ("FNMA Certificates"). FNMA Certificates resemble GNMA
Certificates in that each FNMA Certificate represents a pro rata share of all
interest and principal payments made or owed on the underlying pool. FNMA
guarantees timely payment of interest on FNMA certificates and the full return
of principal. Like GNMA Certificates, FNMA Certificates are assumed to be
prepaid fully in twelfth year.

Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional residential mortgage loans. Such issuers may
in addition be the originators of the underlying mortgage loans as well as the
guarantors of the pass-through certificates. Pools created by such
non-governmental issuers generally offer a higher rate of return than
governmental pools because there are no direct or indirect governmental
guarantees of payments in the former pools. However, timely payment of interest
and principal of these pools may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance. The
insurance and guarantees are issued by government entities, private insurers and
the mortgage poolers.

The Fund expects that governmental or private entities may create mortgage loan
pools offering pass-through investments in addition to those described above. As
new types of pass-through securities are developed and offered to investors, the
Investment Manager may, consistent with the Fund's investment objectives,
policies and restrictions, consider making investments in such new types of
securities.

Other types of mortgage-related securities include debt securities that are
secured, directly or indirectly, by mortgages on commercial real estate or
residential rental properties, or by first liens on residential manufactured
homes (as defined in section 603(6) of the National Manufactured Housing
Construction and Safety Standards Act of 1974), whether such manufactured homes
are considered real or personal property under the laws of the states in which
they are located.

Securities in this investment category include, among others, standard
mortgage-backed bonds and newer collateralized mortgage obligations ("CMOs").
Mortgage-backed bonds are secured by pools of mortgages, but unlike pass-through
securities, payments to bondholders are not determined by payments on the
mortgages. The bonds consist of a single class, with interest payable
periodically and principal payable on the stated date of maturity. CMOs have
characteristics of both pass-through securities and mortgage-backed bonds. CMOs
are secured by pools of mortgages, typically in the form of "guaranteed"
pass-through certificates such as GNMA, FNMA, or FHLMC securities. The payments
on the collateral securities determine the payments to bondholders, but there is
not a direct "pass-through" of payments. CMOs are structured into multiple
classes, each bearing a different date of maturity. Monthly payments of
principal received from the pool of underlying mortgages, including prepayments,
is first returned to investors holding the shortest maturity class. Investors
holding the longest maturity class receive principal only after the shorter
maturity classes have been retired.

CMOs are issued by entities that operate under order from the SEC exempting such
issuers from the provisions of the 1940 Act. Until recently, the staff of the
SEC had taken the position that such issuers were investment companies and that,
accordingly, an investment by an investment company (such as the Fund) in the
securities of such issuers was subject to the limitations imposed by Section 12
of the 1940 Act. However, in reliance on SEC staff interpretations, the Fund may
invest in securities issued by certain "exempted issuers" without regard to the
limitations of Section 12 of the 1940 Act. In its interpretation, the SEC staff
defined "exempted issuers" as unmanaged, fixed asset issuers that: (a) invest
primarily in mortgage-backed securities; (b) do not issue redeemable securities
as defined in Section 2(a)(32) of the 1940 Act; (c) operate under the general
exemptive orders exempting them from all provisions of the 1940 Act; and (d) are
not registered or regulated under the 1940 Act as investment companies.

Investments in mortgage-related securities involve certain risks. In periods of
declining interest rates, prices of fixed income securities tend to rise.
However, during such periods, the rate of prepayment of mortgages underlying
mortgage-related securities tends to increase, with the result that such
prepayments must be reinvested by the issuer at lower rates. In addition, the
value of such securities may fluctuate in response to the market's perception of
the creditworthiness of the issuers of mortgage-related securities owned by the
Fund. Because investments in mortgage-related securities are interest sensitive,
the ability of the issuer to reinvest favorably in underlying mortgages may be
limited by government regulation or tax policy. For example, action by the Board
of Governors of the Federal Reserve System to limit the growth of the nation's
money supply may cause interest rates to rise and thereby reduce the volume of
new residential mortgages. Additionally, although mortgages and mortgage-related
securities are generally supported by some form of government or private
guarantees and/or insurance, there is no assurance that private guarantors or
insurers will be able to meet their obligations. Further, stripped
mortgage-backed securities are likely to experience greater price volatility
than other types of mortgage securities. The yield to maturity on the interest
only class is extremely sensitive, both to changes in prevailing interest rates
and to the rate of principal payments (including prepayments) on the underlying
mortgage assets. Similarly, the yield to maturity on CMO residuals is extremely
sensitive to prepayments on the related underlying mortgage assets. In addition,
if a series of a CMO includes a class that bears interest at an adjustable rate,
the yield to maturity on the related CMO residual will also be extremely
sensitive to changes in the level of the index upon which interest rate
adjustments are made. A Fund could fail to fully recover its initial investment
in a CMO residual or a stripped mortgage-backed security.

Subordinated Mortgage Securities. The Fund may also invest in subordinated
mortgage securities that have certain characteristics and certain associated
risks. In general, the subordinated mortgage securities in which the Fund may
invest consist of a series of certificates issued in multiple classes with a
stated maturity or final distribution date. One or more classes of each series
may be entitled to receive distributions allocable only to principal, principal
prepayments, interest or any combination thereof prior to one or more other
classes, or only after the occurrence of certain events, and may be subordinated
in the right to receive such distributions on such certificates to one or more
senior classes of certificates. The rights associated with each class of
certificates are set forth in the applicable pooling and servicing agreement,
form of certificate and offering documents for the certificates.

The subordination terms are usually designed to decrease the likelihood that the
holders of senior certificates will experience losses or delays in the receipt
of their distributions and to increase the likelihood that the senior
certificate holders will receive aggregate distributions of principal and
interest in the amounts anticipated. Generally, pursuant to such subordination
terms, distributions arising out of scheduled principal, principal prepayments,
interest or any combination thereof that otherwise would be payable to one or
more other classes of certificates of such series (i.e., the subordinated
certificates) are paid instead to holders of the senior certificates. Delays in
receipt of scheduled payments on mortgage loans and losses on defaulted mortgage
loans are typically borne first by the various classes of subordinated
certificates and then by the holders of senior certificates.

In some cases, the aggregate losses in respect of defaulted mortgage loans that
must be borne by the subordinated certificates and the amount of the
distributions otherwise distributable on the subordinated certificates that
would, under certain circumstances, be distributable to senior certificate
holders may be limited to a specified amount. All or any portion of
distributions otherwise payable to holders of subordinated certificates may, in
certain circumstances, be deposited into one or more reserve accounts for the
benefit of the senior certificate holders. Since a greater risk of loss is borne
by the subordinated certificate holders, such certificates generally have a
higher stated yield than the senior certificates.

Interest on the certificates generally accrues on the aggregate principal
balance of each class of certificates entitled to interest at an applicable
rate. The certificate interest rate may be a fixed rate, a variable rate based
on current values of an objective interest index or a variable rate based on a
weighted average of the interest rate on the mortgage loans underlying or
constituting the mortgage assets. In addition, the underlying mortgage loans may
have variable interest rates.

Generally, to the extent funds are available, interest accrued during each
interest accrual period on each class of certificates entitled to interest is
distributable on certain distribution dates until the aggregate principal
balance of the certificates of such class has been distributed in full.

The amount of interest that accrues during any interest accrual period and over
the life of the certificates depends primarily on the aggregate principal
balance of the class of certificates, which, unless otherwise specified, depends
primarily on the principal balance of the mortgage assets for each such period
and the rate of payment (including prepayments) of principal of the underlying
mortgage loans over the life of the trust.

A series of certificates may consist of one or more classes as to which
distributions allocable to principal will be allocated. The method by which the
amount of principal to be distributed on the certificates on each distribution
date is calculated and the manner in which such amount could be allocated among
classes varies and could be effected pursuant to a fixed schedule, in relation
to the occurrence of certain events or otherwise. Special distributions are also
possible if distributions are received with respect to the mortgage assets, such
as is the case when underlying mortgage loans are prepaid.

A mortgage-related security that is senior to a subordinated residential
mortgage security will not bear a loss resulting from the occurrence of a
default on an underlying mortgage until all credit enhancement protecting such
senior holder is exhausted. For example, the senior holder will only suffer a
credit loss after all subordinated interests have been exhausted pursuant to the
terms of the subordinated residential mortgage security. The primary credit risk
to the Fund by investing in subordinated residential mortgage securities is
potential losses resulting from defaults by the borrowers under the underlying
mortgages. The Fund would generally realize such a loss in connection with a
subordinated residential mortgage security only if the subsequent foreclosure
sale of the property securing a mortgage loan does not produce an amount at
least equal to the sum of the unpaid principal balance of the loan as of the
date the borrower went into default, the interest that was not paid during the
foreclosure period and all foreclosure expenses.

The Investment Manager will seek to limit the risks presented by subordinated
residential mortgage securities by reviewing and analyzing the characteristics
of the mortgage loans that underlie the pool of mortgages securing both the
senior and subordinated residential mortgage securities. The Investment Manager
has developed a set of guidelines to assist in the analysis of the mortgage
loans underlying subordinated residential mortgage securities. Each pool
purchase is reviewed against the guidelines. The Fund seeks opportunities to
acquire subordinated residential mortgage securities where, in the view of the
Investment Manager, the potential for a higher yield on such instruments
outweighs any additional risk presented by the instruments. The Investment
Manager will seek to increase yield to shareholders by taking advantage of
perceived inefficiencies in the market for subordinated residential mortgage
securities.

Credit Enhancement. Credit enhancement for the senior certificates comprising a
series is provided by the holders of the subordinated certificates to the extent
of the specific terms of the subordination and, in some cases, by the
establishment of reserve funds. Depending on the terms of a particular pooling
and servicing agreement, additional or alternative credit enhancement may be
provided by a pool insurance policy and/or other insurance policies, third party
limited guaranties, letters of credit, or similar arrangements. Letters of
credit may be available to be drawn upon with respect to losses due to mortgagor
bankruptcy and with respect to losses due to the failure of a master service to
comply with its obligations, under a pooling and servicing agreement, if any, to
repurchase a mortgage loan as to which there was fraud or negligence on the part
of the mortgagor or originator and subsequent denial of coverage under a pool
insurance policy, if any. A master service may also be required to obtain a pool
insurance policy to cover losses in an amount up to a certain percentage of the
aggregate principal balance of the mortgage loans in the pool to the extent not
covered by a primary mortgage insurance policy by reason of default in payments
on mortgage loans.

Optional Termination of a Trust. A pooling and servicing agreement may provide
that the depositor and master service could effect early termination of a trust,
after a certain specified date or the date on which the aggregate outstanding
principal balance of the underlying mortgage loans is less than a specific
percentage of the original aggregate principal balance of the underlying
mortgage loans by purchasing all of such mortgage loans at a price, unless
otherwise specified, equal to the greater of a specified percentage of the
unpaid principal balance of such mortgage loans, plus accrued interest thereon
at the applicable certificate interest rate, or the fair market value of such
mortgage assets. Generally, the proceeds of such repurchase would be applied to
the distribution of the specified percentage of the principal balance of each
outstanding certificate of such series, plus accrued interest, thereby retiring
such certificates. Notice of such optional termination would be given by the
trustee prior to such distribution date.

Underlying Mortgage Loans. The underlying trust assets are a mortgage pool
generally consisting of mortgage loans on single, multi-family and mobile home
park residential properties. The mortgage loans are originated by savings and
loan associations, savings banks, commercial banks or similar institutions and
mortgage banking companies.

Various services provide certain customary servicing functions with respect to
the mortgage loans pursuant to servicing agreements entered into between each
service and the master service. A service duties generally include collection
and remittance of principal and interest payments, administration of mortgage
escrow accounts, collection of insurance claims, foreclosure procedures and, if
necessary, the advance of funds to the extent certain payments are not made by
the mortgagors and are recoverable under applicable insurance policies or from
proceeds of liquidation of the mortgage loans.

The mortgage pool is administered by a master service who (a) establishes
requirements for each service, (b) administers, supervises and enforces the
performance by the services of their duties and responsibilities under the
servicing agreements, and (c) maintains any primary insurance, standard hazard
insurance, special hazard insurance and any pool insurance required by the terms
of the certificates. The master service may be an affiliate of the depositor and
also may be the service with respect to all or a portion of the mortgage loans
contained in a trust fund for a series of certificates.

International Debt Securities.

The Fund may invest in debt obligations (which may be denominated in U.S. dollar
or in non-U.S. currencies) of any rating issued or guaranteed by foreign
corporations, certain supranational entities (such as the World Bank) and
foreign governments (including political subdivisions having taxing authority)
or their agencies or instrumentalities, including American Depository Receipts.
No more than 10% of the Fund's total assets, at the time of purchase, will be
invested in securities of foreign issuers. These investments may include debt
obligations such as bonds (including sinking fund and callable bonds),
debentures and notes, together with preferred stocks, pay-in-kind securities,
and zero coupon securities.

In determining whether to invest in debt obligations of foreign issuers, the
Fund will consider the relative yields of foreign and domestic High Yield
Securities, the economies of foreign countries, the condition of such countries'
financial markets, the interest rate climate of such countries and the
relationship of such countries' currency to the U.S. Dollar. These factors are
judged on the basis of fundamental economic criteria (e.g., relative inflation
levels and trends, growth rate forecasts, balance of payments status and
economic policies) as well as technical and political data. Subsequent foreign
currency losses may result in the Fund having previously distributed more income
in a particular period than was available from investment income, which could
result in a return of capital to shareholders. The Fund's portfolio of foreign
securities may include those of a number of foreign countries, or, depending
upon market conditions, those of a single country.

Investments in securities of issuers in non-industrialized countries generally
involve more risk and may be considered highly speculative. Although a portion
of the Fund's investment income may be received or realized in foreign
currencies, the Fund will be required to compute and distribute its income in
U.S. dollars and absorb the cost of currency fluctuations and the cost of
currency conversions. Investment in foreign securities involves considerations
and risks not associated with investment in securities of U.S. issuers. For
example, foreign issuers are not required to use generally accepted accounting
principles. If foreign securities are not registered under the Securities Act of
1933, as amended, the issuer does not have to comply with the disclosure
requirements of the Securities Exchange Act of 1934, as amended. The values of
foreign securities investments will be affected by incomplete or inaccurate
information available to the Investment Manager as to foreign issuers, changes
in currency rates, exchange control regulations or currency blockage,
expropriation or nationalization of assets, application of foreign tax laws
(including withholding taxes), changes in governmental administration or
economic or monetary policy. In addition, it is generally more difficult to
obtain court judgments outside the United States.

When-Issued Securities

The Fund may invest up to 10% of its net assets in High Yield Securities or
Other Securities on a when-issued basis. Under such an arrangement, delivery of,
and payment for, the instruments occur up to 45 days after the agreement to
purchase the instrument is made by the Fund. The purchase price to be paid by
the Fund and the interest rate on the instruments to be purchased are both
determined when the Fund agrees to purchase the securities "when issued." The
Fund is permitted to sell when-issued securities prior to the issuance of such
securities, but will not purchase such securities with the intent to make such a
sale. Securities purchased on a when-issued basis are subject to the risk that
yields available in the market, when delivery takes place, may be higher or
lower than the rate to be received on the securities the Fund is committed to
purchase. After the Fund is committed to purchase when-issued securities, but
prior to the issuance of said securities, the Fund is subject to adverse changes
in the value of these securities based upon changes in interest rates, as well
as changes based upon the public perception of the issuer and its
creditworthiness. The Fund will maintain a segregated account with its
custodian, consisting of cash and liquid assets at least equal to the value of
purchase commitments until payment is made.

Restricted and Illiquid Securities

The Fund may purchase restricted securities (i.e., securities the disposition of
which may be subject to legal restrictions) and securities that may not be
readily marketable. Because of the nature of these securities, a considerable
period of time may elapse between the Fund's decision to dispose of these
securities and the time when the Fund is able to dispose of them, during which
time the value of the securities could decline. The expenses of registering
restricted securities (excluding securities that may be resold by the Fund
pursuant to Rule 144A) may be negotiated at the time such securities are
purchased by the Fund. When registration is required before the securities may
be resold, a considerable period may elapse between the decision to sell the
securities and the time when the Fund would be permitted to sell them. Thus, the
Fund may not be able to obtain as favorable a price as that prevailing at the
time of the decision to sell. The Fund may also acquire securities through
private placements. Such securities may have contractual restrictions on their
resale, which might prevent their resale by the Fund at a time when such resale
would be desirable. Securities that are not readily marketable will be valued by
the Fund in good faith pursuant to procedures adopted by the Company's Board of
Directors.

Zero Coupon and Pay-In-Kind Securities

The Fund may invest in zero coupon and pay-in-kind securities. Zero coupon, or
deferred interest securities are debt obligations that do not entitle the holder
to any periodic payment of interest prior to maturity or a specified date when
the securities begin paying current interest (the "cash payment date") and
therefore are issued and traded at a discount from their face amounts or par
value. The discount varies, depending on the time remaining until maturity or
cash payment date, prevailing interest rates, liquidity of the security and the
perceived credit quality of the issuer. The discount, in the absence of
financial difficulties of the issuer, decreases as the final maturity or cash
payment date of the security approaches. The market prices of zero coupon and
delayed interest securities generally are more volatile than the market prices
of securities that pay interest periodically and are likely to respond to
changes in interest rates to a greater degree than do non-zero coupon securities
having similar maturities and credit quality. Current federal income tax law
requires holders of zero coupon securities to report as interest income each
year the portion of the original issue discount on such securities (other than
tax-exempt original issue discount from a zero coupon security) that accrues
that year, even though the holders receive no cash payments of interest during
the year.

Pay-in-kind securities are securities that pay interest or dividends through the
issuance of additional securities. The Fund will be required to report as income
annual inclusions of original issue discount over the life of such securities as
if it were paid on a current basis, although no cash interest or dividend
payments are received by the Fund until the cash payment date or the securities
mature. Under certain circumstances, the Fund could also be required to include
accrued market discount or capital gain with respect to its pay-in-kind
securities.

The risks associated with lower rated debt securities apply to these securities.
Zero coupon and pay-in-kind securities are also subject to the risk that in the
event of a default, the Fund may realize no return on its investment, because
these securities do not pay cash interest.

Lending of Portfolio Securities

In order to generate additional income, the Fund may lend its portfolio
securities in an amount up to 33-1/3% of total Fund assets to broker-dealers,
major banks, or other recognized domestic institutional borrowers of securities.
No lending may be made with any companies affiliated with Pilgrim America
Investments, Inc. (the "Investment Manager"). The borrower at all times during
the loan must maintain with the Fund cash or cash equivalent collateral or
provide to the Fund an irrevocable letter of credit equal in value to at least
100% of the value of the securities loaned. During the time portfolio securities
are on loan, the borrower pays the Fund any dividends or interest paid on such
securities, and the Fund may invest the cash collateral and earn additional
income, or it may receive an agreed-upon amount of interest income from the
borrower who has delivered equivalent collateral or a letter of credit. Loans
are subject to termination at the option of the Fund or the borrower at any
time. The Fund may pay reasonable administrative and custodial fees in
connection with a loan and may pay a negotiated portion of the income earned on
the cash to the borrower or placing broker.

Participation Interests

The Fund may invest in participation interests, subject to the limitation on its
net assets that may be invested in illiquid investments. Participation interests
provide the Fund an undivided interest in a loan made by a bank or other
financial institution in the proportion that the Fund's participation interest
bears to the total principal amount of the loan. No more than 5% of the Fund's
net assets can be invested in participation interests of the same issuing bank.
The Fund must look to the creditworthiness of the borrowing corporation, which
is obligated to make payments of principal and interest on the loan. In the
event the borrower fails to pay scheduled interest or principal payments, the
Fund would experience a reduction in its income and might experience a decline
in the net asset value of its shares. In the event of a failure by the bank to
perform its obligations in connection with the participation agreement, the Fund
might incur certain costs and delays in realizing payment or may suffer a loss
of principal and/or interest.

Repurchase Agreements

The Fund may invest any portion of its assets otherwise invested in money market
instruments in U.S. Government securities and concurrently enter into repurchase
agreements with respect to such securities. Such repurchase agreements will be
made only with government securities dealers recognized by the Board of
Governors of the Federal Reserve System or with member banks of the Federal
Reserve System. Under such agreements, the seller of the security agrees to
repurchase it at a mutually agreed upon time and price. The resale price is in
excess of the purchase price and reflects an agreed upon interest rate for the
period of time the agreement is outstanding. The period of these repurchase
agreements is usually quite short, from overnight to one week, while the
underlying securities generally have longer maturities.

The Fund will always receive as collateral, securities acceptable to it whose
market value is equal to at least 100% of the amount invested by the Fund, and
the Fund will make payment for such securities only upon physical delivery or
evidence of book entry transfer to the account of its Custodian. If the seller
defaults, the Fund might incur a loss or delay in the realization of proceeds if
the value of the collateral securing the repurchase agreement declines and it
might incur disposition costs in liquidating the collateral. The Fund may not
enter into a repurchase agreement with more than seven days to maturity if, as a
result, more than 10% of the value of the Fund's total assets would be invested
in such repurchase agreements.

Banking Industry Obligations

INVESTMENT RESTRICTIONS

The following additional fundamental policies and investment restrictions have
been adopted by the Fund and cannot be changed without approval by the vote of a
majority of the outstanding voting securities of the Fund, as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"). (All policies of
the Fund not specifically identified in this Statement of Additional Information
or the Prospectus as fundamental may be changed without a vote of the
shareholders.)

The Fund may not:

1. Issue senior securities. Good faith hedging transactions and similar
investment strategies will not be treated as senior securities for purposes
of this restriction so long as they are covered in accordance with
applicable regulatory requirements and are structured consistent with
current SEC interpretations.

2. Underwrite securities of other issuers.

3. Invest in commodities except that the Fund may purchase and sell futures
contracts, including those relating to securities, currencies, indexes and
options on futures contracts or indexes and currencies underlying or
related to any such futures contracts.

4. Make loans to persons except (a) through the purchase of a portion of an
issue of publicly distributed bonds, notes, debentures and other evidences
of indebtedness customarily purchased by institutional investors, (b) by
the loan of its portfolio securities in accordance with the policies
described under "Lending of Portfolio Securities," or (c) to the extent the
entry into a repurchase agreement is deemed to be a loan.

5. Purchase the securities of another investment company or investment trust,
except as they may be acquired as part of a merger, consolidation or
acquisition of assets.

6. Purchase any securities on margin or effect a short sale of a security.
(This restriction does not preclude the Fund from obtaining such short-term
credits as may be necessary for the clearance of purchases and sales of its
portfolio securities.)

7. Buy securities from or sell securities to its investment adviser or
principal distributor or any of their affiliates or any affiliates of its
Directors, as principal.

8. Buy, lease or hold real property except for office purposes. (This
restriction does not preclude investment in marketable securities of
companies engaged in real estate activities.)

9. As to 75% of the value of its total assets, invest more than 5% of the
value of its total assets in the securities of any one issuer (other than
the United States Government) or acquire more than 10% of the outstanding
voting securities of any one issuer; but as to the remaining 25% of its
total assets, it retains freedom of action.

10. Borrow money except from banks for temporary or emergency purposes and not
for investment purposes, and then only in amounts not in excess of 5% of
the value of its total assets.

11. Invest in the securities of any company that, including its predecessors,
has not been in business for at least three years.

12. Invest more than 25% of the value of its total assets in any one industry.

13. Invest in securities of any one issuer for the purpose of exercising
control or management.

Notwithstanding the restrictions above, the Fund will not, so long as its shares
are registered for sale in the State of South Dakota: (i) have more than 10% of
its total assets invested in securities of issuers that the Fund is restricted
from selling to the public without registration under the Securities Act of
1933, as amended; (ii) have more than 10% of its total assets invested in real
estate investment trusts or investment companies; (iii) have more than 5% of its
assets invested in options, financial futures or stock index futures, other than
hedging positions or positions that are covered by cash or securities; (iv) have
more than 5% of its assets invested in equity securities of issuers that are not
readily marketable and securities of issuers that have been in operation for
less than three years; and (v) invest any part of its total assets in real
estate or interests in real estate, excluding readily marketable securities and
real estate used for office purposes; commodities, other than precious metals
not to exceed 10% of the Fund's total assets; commodity futures contracts or
options other than as permitted by investment companies qualifying for an
exemption from the definition of commodity pool operator; or interests in
commodity pools or oil, gas or other mineral exploration or development
programs.

The Fund will not, so long as its shares are registered for sale in the State of
Texas, invest in oil, gas or other mineral leases or in real estate limited
partnerships. The Fund will limit its investments in warrants, valued at the
lower of cost or market, to 5% of its net assets. Included within that amount,
but not to exceed 2% of the Fund's net assets, may be warrants that are not
listed on the New York or American Stock Exchange. The Fund will not make loans
unless collateral values are continuously maintained at no less than 100% by
"marking to market" daily.

The Fund will not, so long as its shares are registered for sale in the State of
Ohio: (i) purchase or retain securities of any issuer if the officers or
directors of the Fund, its adviser or manager owning beneficially more than
one-half of one percent of the securities of an issuer together own beneficially
more than five percent of the securities of that issuer, or (ii) borrow, pledge,
mortgage or hypothecate its assets in excess of 1/3 of total Fund assets. The
Fund will only borrow money for emergency or extraordinary purposes.

PORTFOLIO TRANSACTIONS

In all purchases and sales of securities for the portfolio of the Fund, the
primary consideration is to obtain the most favorable price and execution
available. Pursuant to the Agreement, the Investment Manager determines, subject
to the instructions of and review by the Board of Directors of the Company,
which securities are to be purchased and sold by the Fund and which brokers are
to be eligible to execute portfolio transactions of the Fund. Purchases and
sales of securities in the over-the-counter market will generally be executed
directly with a "market-maker," unless in the opinion of the Investment Manager,
a better price and execution can otherwise be obtained by using a broker for the
transaction.

In placing portfolio transactions, the Investment Manager will use its best
efforts to choose a broker capable of providing the brokerage services necessary
to obtain the most favorable price and execution available. The full range and
quality of brokerage services available will be considered in making these
determinations, such as the size of the order, the difficulty of execution, the
operational facilities of the firm involved, the firm's risk in positioning a
block of securities and other factors. In those instances where it is reasonably
determined that more than one broker can offer the brokerage services needed to
obtain the most favorable price and execution available, consideration may be
given to those brokers that supply research and statistical information to the
Fund and/or the Investment Manager, and provide other services in addition to
execution services. The Investment Manager considers such information, which is
in addition to and not in lieu of the services required to be performed by the
Investment Manager under its Agreement with the Fund, to be useful in varying
degrees, but of indeterminable value. The placement of portfolio brokerage with
broker-dealers who have sold shares of the Fund is subject to rules adopted by
the NASD. Provided the Fund's officers are satisfied that the Fund is receiving
the most favorable price and execution available, the Fund may also consider the
sale of the Fund's shares as a factor in the selection of broker-dealers to
execute its portfolio transactions.

During the Fund's fiscal years ended June 30, 1998, 1997 and 1996, the Fund did
not pay any brokerage commissions. The Fund does not intend to effect any
brokerage transaction in its portfolio securities with any broker-dealer
affiliated directly or indirectly with the Investment Manager, except for any
sales of portfolio securities pursuant to a tender offer, in which event the
Investment Manager will offset against the management fee a part of any tender
fees that legally may be received by such affiliated broker-dealer.

In addition to the foregoing, the Fund may obtain securities by exchanging its
shares for securities that meet its investment criteria (See the Fund's
prospectus, "Shareholder's Guide - How to Buy Shares of the Fund"). The
Investment Manager, subject to the instructions and review of the Company's
Board of Directors, will determine the value of securities to be exchanged for
Fund shares in the same manner as it values its portfolio securities. The Fund
will exchange securities for its shares at the public offering price. In this
regard, the Fund may be obligated to pay firms a dealer reallowance. In the
event the Fund has insufficient cash to pay the dealer reallowance for shares of
the Fund you purchase through an exchange, it may be required to sell some
portfolio securities. Such sale of portfolio securities may result in realized
loss at a time when the Fund would prefer to hold such securities, such as in a
rising market.

Investment decisions for the Fund are made independently from those of the other
Pilgrim America Funds, although it is possible that at times identical
securities will be selected for purchase or sale by more than one of such funds.
However, the position of each fund in the same issuer may vary and the length of
time that each fund may choose to hold its investment in the same issuer may
likewise vary. To the extent any of these funds seeks to acquire the same
security at the same time, one or more of the funds may not be able to acquire
as large a portion of such security as it desires, or it may have to pay a
higher price for such security. Similarly, any of the funds may not be able to
obtain as high a price for, or as large an execution of, an order to sell any
particular security if either of the other funds desires to sell the same
security at the same time. If more than one of such funds simultaneously
purchases or sells the same security, each day's transaction in such security
will be averaged as to price and allocated between such funds in accordance with
the total amount of such security being purchased or sold by each of such funds.
It is recognized that in some cases this system could have a detrimental effect
on the price or value of the security insofar as the Fund is concerned.

A broker or dealer utilized by the Investment Manager may furnish statistical,
research and other information or services that are deemed by the Investment
Manager to be beneficial to a Fund's investment programs. Research services
received from brokers supplement the Investment Manager's own research, and may
include the following types of information: statistical and background
information on industry groups and individual companies; forecasts and
interpretations with respect to U.S. and foreign economies, securities, markets,
specific industry groups and individual companies; information on political
developments; portfolio management strategies; performance information on
securities and information concerning prices of securities; and information
supplied by specialized services to the Investment Manager and the Board Members
with respect to the performance, investment activities and fees and expenses of
other mutual funds. Such information may be communicated electronically, orally
or in written form. Research services may also include providing equipment used
to communicate research information, arranging meetings with management of
companies and providing access to consultants who supply research information.

The outside research assistance is useful to the Investment Manager since the
brokers utilized by the Investment Manager as a group tend to follow a broader
universe of securities and other matters than the Investment Manager's staff can
follow. In addition, this research provides the Investment Manager with a
diverse perspective on financial markets. Research services that are provided to
the Investment Manager by brokers are available for the benefit of all accounts
managed or advised by the Investment Manager. In some cases, the research
services are available only from the broker providing such services. In other
cases. the research services may be obtainable from alternative sources in
return for cash payments. The Investment Manager is of the opinion that because
the broker research supplements, rather than replaces, its research, the receipt
of such research does not tend to decrease its expenses, but tends to improve
the quality of its investment advice. However, to the extent that the Investment
Manager would have purchased any such research services had such services not
been provided by brokers, the expenses of such services to the Investment
Manager could be considered to have been reduced accordingly. Certain research
services furnished by brokers or dealers may be useful to the Investment Manager
with respect to clients other than a specific Fund. The Investment Manager is of
the opinion that this material is beneficial in supplementing the Investment
Manager's research and analysis, and, therefore, it may benefit a Fund by
improving the quality of the investment advice. The advisory fees paid by a Fund
are not reduced because the Investment Manager receives such services.

For the fiscal years ended June 30, 1998 and 1997, the Fund's portfolio turnover
rates were ___% and 394%, respectively. The Fund places no restrictions on
portfolio turnover. Because a high turnover rate increases transaction costs and
may increase taxable gains, the Investment Manager carefully weighs the
anticipated benefits of short-term investing against these consequences. An
increased portfolio turnover rate is due to a greater volume of shareholder
purchase orders and other special market conditions.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

Special Purchases at Net Asset Value

Class A or Class M shares of the Fund may be purchased at net asset value,
without a sales charge, by persons who have redeemed their Class A or Class M
shares of the Fund (or shares of other funds managed by the Investment Manager
in accordance with the terms of such privileges established for such funds)
within the previous 90 days. The amount that may be so reinvested in the Fund is
limited to an amount up to, but not exceeding, the redemption proceeds (or to
the nearest full share if fractional shares are not purchased). In order to
exercise this privilege, a written order for the purchase of shares must be
received by the Fund's Transfer Agent, or be postmarked, within 90 days after
the date of redemption. This privilege may only be used once per calendar year.
Payment must accompany the request and the purchase will be made at the then
current net asset value of the Fund. Such purchases may also be handled by a
securities dealer who may charge a shareholder for this service. If the
shareholder has realized a gain on the redemption, the transaction is taxable
and any reinvestment will not alter any applicable Federal capital gains tax. If
there has been a loss on the redemption and a subsequent reinvestment pursuant
to this privilege, some or all of the loss may not be allowed as a tax deduction
depending upon the amount reinvested, although such disallowance is added to the
tax basis of the shares acquired upon the reinvestment.

Shareholders of Pilgrim America General Money Market Shares who acquired their
shares by using all or a portion of the proceeds from the redemption of Class A
or Class M shares of the Fund or open-end Pilgrim America Funds may reinvest
such amount plus any shares acquired through dividend reinvestment in Class A or
Class M shares of the Fund at its current net asset value, without a sales
charge.

Letters of Intent and Rights of Accumulation

An investor may immediately qualify for a reduced sales charge on a purchase of
Class A or Class M shares of the Fund or any open-end Pilgrim America Fund which
offers Class A shares, Class M shares or shares with front-end sales charges, by
completing the Letter of Intent section of the Shareholder Application in the
Prospectus (the "Letter of Intent" or "Letter"). By completing the Letter, the
investor expresses an intention to invest during the next 13 months a specified
amount which if made at one time would qualify for the reduced sales charge. At
any time within 90 days after the first investment which the investor wants to
qualify for the reduced sales charge, a signed Shareholder Application, with the
Letter of Intent section completed, may be filed with the Fund. After the Letter
of Intent is filed, each additional investment made will be entitled to the
sales charge applicable to the level of investment indicated on the Letter of
Intent as described above. Sales charge reductions based upon purchases in more
than one Pilgrim America Fund will be effective only after notification to the
Distributor that the investment qualifies for a discount. The shareholder's
holdings in the Investment Manager's funds (excluding Pilgrim America General
Money Market Shares) acquired within 90 days before the Letter of Intent is
filed will be counted towards completion of the Letter of Intent but will not be
entitled to a retroactive downward adjustment of sales charge until the Letter
of Intent is fulfilled. Any redemptions made by the shareholder during the
13-month period will be subtracted from the amount of the purchases for purposes
of determining whether the terms of the Letter of Intent have been completed. If
the Letter of Intent is not completed within the 13-month period, there will be
an upward adjustment of the sales charge as specified below, depending upon the
amount actually purchased (less redemption) during the period.

Redemptions

Payment to shareholders for shares redeemed will be made within three days after
receipt by the Fund's Transfer Agent of the written request in proper form,
except that the Fund may suspend the right of redemption or postpone the date of
payment as to the Fund during any period when (a) trading on the New York Stock
Exchange is restricted as determined by the SEC or such Exchange is closed for
other than weekends and holidays; (b) an emergency exists as determined by the
SEC making disposal of portfolio securities or valuation of net assets of the
Fund not reasonably practicable; or (c) for such other period as the SEC may
permit for the protection of the Fund's shareholders. At various times, the Fund
may be requested to redeem shares for which it has not yet received good
payment. Accordingly, the Fund may delay the mailing of a redemption check until
such time as it has assured itself that good payment has been collected for the
purchase of such shares, which may take up to 15 days or longer.

The value of shares on redemption or repurchase may be more or less than the
investor's cost, depending upon the market value of the portfolio securities at
the time of redemption or repurchase.

Shareholders will be charged a CDSC or redemption fee if certain of those shares
are redeemed within the applicable time periods as stated in the Prospectus.

Conversion of Class B Shares

DETERMINATION OF SHARE PRICE

Portfolio securities, including any options written by the Fund, listed or
traded on a national securities exchange or included in the NASDAQ National
Market System will be valued at the last reported sale price on the valuation
day. Securities traded on an exchange or NASDAQ for which there has been no sale
that day and other securities traded in the over-the-counter market will be
valued at the last reported bid price on the valuation day. Portfolio securities
underlying traded call options written by the Fund will be valued at their
market price as determined above; however, the current market value of the
option written by the Fund will be subtracted from net asset value. In cases in
which securities are traded on more than one exchange, the securities are valued
on the exchange designated by or under the authority of the Board of Directors
as the primary market. Short-term obligations maturing in less than 60 days will
generally be valued at amortized cost. Securities for which quotations are not
readily available and all other assets will be valued at their respective fair
values as determined in good faith by or under the direction of the Board of
Directors of the Company. Any assets or liabilities initially expressed in terms
of non-U.S. dollar currencies are translated into U.S. dollars at the prevailing
market rates as quoted by one or more banks or dealers on the day of valuation.

SHAREHOLDER SERVICES AND PRIVILEGES

All shareholders will receive a confirmation of each new transaction in their
accounts, which will also show the total number of Fund shares owned by each
shareholder, the number of shares being held in safekeeping by the Fund's
Transfer Agent for the account of the shareholder and a cumulative record of the
account for the entire year. Shareholders may rely on these statements in lieu
of certificates. Certificates representing shares of the Fund will not be issued
unless the shareholder requests them in writing.

Self-Employed and Corporate Retirement Plans

For self-employed individuals and corporate investors that wish to purchase
shares of the Fund, there is available through the Fund a Prototype Plan and
Custody Agreement. The Custody Agreement provides that Investors Fiduciary Trust
Company, Kansas City, Missouri, will act as Custodian under the Plan, and will
furnish custodial services for an annual maintenance fee of $12.00 for each
participant, with no other charges. (This fee is in addition to the normal
Custodian charges paid by the Fund.) The annual contract maintenance fee may be
waived from time to time. For further details, including the right to appoint a
successor Custodian, see the Plan and Custody Agreements as provided by the
Fund. Employers who wish to use shares of the Fund under a custodianship with
another bank or trust company must make individual arrangements with such
institution.

Individual Retirement Accounts

It is advisable for an investor considering the funding of any retirement plan
to consult with an attorney or to obtain advice from a competent retirement plan
consultant.

Telephone Redemption and Exchange Privileges

1. Telephone redemption and/or exchange instructions received in good order
before the pricing of a Fund on any day on which the New York Stock
Exchange is open for business (a "Business Day"), but not later than 4:00
p.m. eastern time, will be processed at that day's closing net asset value.
For each exchange, the shareholder's account may be charged an exchange
fee. There is no fee for telephone redemption; however, redemptions of
Class A and Class B shares may be subject to a contingent deferred sales
charge (See "Redemption of Shares" in the Prospectus).

2. Telephone redemption and/or exchange instructions should be made by dialing
1-800-992-0180.

3. Pilgrim America Funds will not permit exchanges in violation of any of the
terms and conditions set forth in the Funds' Prospectus or herein.

4. Telephone redemption requests must meet the following conditions to be
accepted by Pilgrim America Funds:

(b) Certain account information will need to be provided for
verification purposes before the redemption will be executed.

(c) Only one telephone redemption (where proceeds are being mailed
to the address of record) can be processed with in a 30 day
period.

(d) The maximum amount which can be liquidated and sent to the
address of record at any one time is $100,000.

(e) The minimum amount which can be liquidated and sent to a
predetermined bank account is $5,000.

5. If the exchange involves the establishment of a new account, the dollar
amount being exchanged must at least equal the minimum investment
requirement of the Pilgrim America Fund being acquired.

6. Any new account established through the exchange privilege will have the
same account information and options except as stated in the Prospectus.

7. Certificated shares cannot be redeemed or exchanged by telephone but must
be forwarded to Pilgrim America at P.O. Box 419368, Kansas City, MO 64141
and deposited into your account before any transaction may be processed.

8. If a portion of the shares to be exchanged are held in escrow in connection
with a Letter of Intent, the smallest number of full shares of the Pilgrim
America Fund to be purchased on the exchange having the same aggregate net
asset value as the shares being exchanged shall be substituted in the
escrow account. Shares held in escrow may not be redeemed until the Letter
of Intent has expired and/or the appropriate adjustments have been made to
the account.

9. Shares may not be exchanged and/or redeemed unless an exchange and/or
redemption privilege is offered pursuant to the Funds' then-current
prospectus.

10. Proceeds of a redemption may be delayed up to 15 days or longer until the
check used to purchase the shares being redeemed has been paid by the bank
upon which it was drawn.

DISTRIBUTIONS

As noted in the Prospectus, the Fund's shareholders have the privilege of
reinvesting both income dividends and capital gains distributions, if any, in
additional shares of the same class at the then current net asset value with no
sales charge. Alternatively, a shareholder can elect at any time to receive
dividends and/or capital gains distributions in cash. In the absence of such an
election, each purchase of shares of the Fund is made upon the condition and
understanding that the Fund's Transfer Agent is automatically the shareholder's
agent to receive his dividends and distributions upon all shares registered in
his name and to reinvest them in full and fractional shares of the Fund at the
applicable net asset value in effect at the close of business on the
reinvestment date. A shareholder may still at any time after a purchase of Fund
shares request that dividends and/or capital gains distributions be paid to him
in cash.

TAX CONSIDERATIONS

The following discussion summarizes certain U.S. federal tax considerations
incident to an investment in the Fund.

Distributions

Dividends of investment company taxable income (including net short-term capital
gains) are taxable to shareholders as ordinary income. The Fund expects that
distributions of investment company taxable income are not expected to be
eligible for the corporate dividends-received deduction. Distributions of net
capital gains (the excess of net long-term capital gains over net short-term
capital losses) designated by the Fund as capital gain dividends should be
taxable to shareholders as long-term capital gains, regardless of the length of
time the Fund's shares have been hold by a shareholder, and are not eligible for
the dividends-received deduction. Generally, dividends and distributions are
taxable to shareholders, whether received in cash or reinvested in shares of the
Fund. Any distributions that are not from the Fund's investment company taxable
income or net capital gain may be characterized as a return of capital to
shareholders or, in some cases, as capital gain. Shareholders will be notified
annually as to the federal tax status of dividends and distributions they
receive and any tax withheld thereon.

Original Issue Discount/Market Discount

Certain of the debt securities acquired by the Fund may be treated as debt
securities that were originally issued at a discount. Original issue discount
can generally be defined as the difference between the price at which a security
was issued and its stated redemption price at maturity. Although no cash income
is actually received by the Fund, original issue discount that accrues on a debt
security in a given year generally is treated for federal income tax purposes as
interest and, therefore, such income is subject to the distribution requirements
of the Code. If the Fund invests in certain high yield original issue discount
securities issued by corporations, a portion of the original issue discount
accruing on the securities may be eligible for the deduction for dividends
received by corporations. In such event, properly designated dividends of
investment company taxable income received from the Fund by its corporate
shareholders, to the extent attributable to such portion of accrued original
issue discount, may be eligible for this deduction for dividends received by
corporations.

Some of the debt securities may be purchased by the Fund at a discount which
exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for federal income tax purposes.
The gain realized on the disposition of any taxable debt security having market
discount generally will be treated as ordinary income to the extent it does not
exceed the accrued market discount on such debt security. Generally, market
discount accrues on a daily basis for each day the debt security is held by the
Fund at a constant rate over the time remaining to the debt security's maturity
or, at the election of the Fund, at a constant yield to maturity which takes
into account the semi-annual compounding of interest.

Foreign Currency Transactions

Under the Code, gains or losses attributable to fluctuations in foreign currency
exchange rates which occur between the time the Fund accrues income or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such receivables or pays such
liabilities generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of debt securities denominated in a foreign currency
and on disposition of certain financial contracts and options, gains or losses
attributable to fluctuations in the value of foreign currency between the date
of acquisition of the security or contract and the date of disposition also are
treated as ordinary gain or loss. These gains and losses, referred to under the
Code as "section 988" gains and losses, may increase or decrease the amount of
the Fund's net investment income to be distributed to its shareholders as
ordinary income.

Options and Hedging Transactions

Certain options and financial contracts in which the Fund may invest are
"section 1256 contracts." Gains or losses on section 1256 contracts generally
are considered 60% long-term and 40% short-term capital gains or losses
("60/40"); however, foreign currency gains or losses (as discussed below)
arising from certain section 1256 contracts may be treated as ordinary income or
loss. Also, section 1256 contracts held by the Fund at the end of each taxable
year (and on certain other dates as prescribed under the Code) are
"marked-to-market" with the result that unrealized gains or losses are treated
as though they were realized.

Generally, the hedging transactions undertaken by the Fund may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by the Fund. In addition, losses
realized by the Fund on positions that are part of the straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to the Fund of hedging transactions are not
entirely clear. The hedging transactions may increase the amount of short-term
capital gain realized by the Fund which is taxed as ordinary income when
distributed to shareholders.

The Fund may make one or more of the elections available under the Code which
are applicable to straddles. If the Fund makes any of the elections, the amount,
character, and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.

Because application of the straddle rules may affect the character of gains or
losses, defer losses and/or accelerate the recognition of gains or losses from
the affected straddle positions, the amount which must be distributed to
shareholders and which will be taxed to shareholders an ordinary income or
long-term capital gain may be increased or decreased as compared to a fund that
did not engage in such hedging transactions.

Notwithstanding any of the foregoing, the Fund may recognize gain (but not loss)
from a constructive sale of certain "appreciated financial positions" if the
Fund enters into a short sale, notional principal contract, futures or forward
contract transaction with respect to the appreciated position or substantially
identical property. Appreciated financial positions subject to this constructive
sale treatment are interests (including options, futures and forward contracts
and short sales) in stock, partnership interests, certain actively traded trust
instruments and certain debt instruments. Constructive sale treatment of
appreciated financial positions does not apply to certain transactions closed in
the 90-day period ending with the 30th day after the close of the Fund's taxable
year, if certain conditions are met.

Requirements relating to the Fund's tax status as a regulated investment company
may limit the extent to which the Fund will be able to engage in transactions in
options and foreign currency forward contracts.

Sale of Shares

Upon the sale or taxable exchange of his shares, a shareholder will realize a
taxable gain or loss depending upon his basis in the shares. Such gain or loss
will be treated as capital gain or loss if the shares are capital assets in the
shareholder's hands, which generally may be eligible for reduced federal tax
rates, depending on the shareholder's holding period for the shares. Any loss
realized on a sale or exchange will be disallowed to the extent that the shares
disposed of are replaced (including replacement through the reinvesting of
dividends and capital gain distributions in the Fund) within a-period of 61 days
beginning 30 days before and ending 30 days after the disposition of the shares.
In such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized by a shareholder on the sale of the Fund's
shares held by the shareholder for six months or less will be treated for
federal income tax purposes as a long-term capital loss to the extent of capital
gain dividends received by the shareholder with respect to such shares.

Backup Withholding

Other Taxes

PERFORMANCE INFORMATION

The Fund may, from time to time, include "total return" or "yield" in
advertisements or reports to shareholders or prospective investors. Quotations
of average annual total return will be expressed in terms of the average annual
compounded rate of return of a hypothetical investment in the Fund over periods
of 1, 5 and 10 years (up to the life of the Fund), calculated pursuant to the
following formula which is prescribed by the SEC:

P(1 + T)n = ERV

All total return figures assume that all dividends are reinvested when paid.

a - b 6
2 [(----- + 1) - 1]
cd
where:
a = dividends and interest earned during the period,
b = expenses accrued for the period (net of reimbursements),
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the
period.

Under this formula, interest earned on debt obligations for purposes of "a"
above, is calculated by (1) computing the yield to maturity of each obligation
held by the Fund based on the market value of the obligation (including actual
accrued interest) at the close of business on the last day of each month, or,
with respect to obligations purchased during the month, the purchase price (plus
actual accrued interest), (2) dividing that figure by 360 and multiplying the
quotient by the market value of the obligation (including actual accrued
interest as referred to above) to determine the interest income on the
obligation for each day of the subsequent month that the obligation is in the
Fund's portfolio (assuming a month of 30 days) and (3) computing the total of
the interest earned on all debt obligations and all dividends accrued on all
equity securities during the 30-day or one month period. In computing dividends
accrued, dividend income is recognized by accruing 1/360 of the stated dividend
rate of a security each day that the security is in the Fund's portfolio. For
purposes of "b" above, Rule 12b-1 Plan expenses are included among the expenses
accrued for the period. Any amounts representing sales charges will not be
included among these expenses; however, the Fund will disclose the maximum sales
charge as well as any amount or specific rate of any nonrecurring account
charges. Undeclared earned income, computed in accordance with generally
accepted accounting principles, may be subtracted from the maximum offering
price calculation required pursuant to "d" above.

The Fund may also from time to time advertise its yield based on a 30-day or
90-day period ended on a date other than the most recent balance sheet included
in the Fund's Registration Statement, computed in accordance with the yield
formula described above, as adjusted to conform with the differing period for
which the yield computation is based.

Any quotation of performance stated in terms of yield (whether based on a 30-day
or 90-day period) will be given no greater prominence than the information
prescribed under SEC rules. In addition, all advertisements containing
performance data of any kind will include a legend disclosing that such
performance data represents past performance and that the investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.

Total returns and yields are based on past results and are not necessarily a
prediction of future performance.

Performance Comparisons. In reports or other communications to shareholders or
in advertising material, the Fund may compare the performance of its Class A,
Class B, and Class M shares with that of other mutual funds as listed in the
rankings prepared by Lipper Analytical Services, Inc., Morningstar, Inc., CDA
Technologies, Inc., Value Line, Inc. or similar independent services that
monitor the performance of mutual funds or with other appropriate indexes of
investment securities. In addition, certain indexes may be used to illustrate
historic performance of select asset classes. The performance information may
also include evaluations of the Fund published by nationally recognized ranking
services and by financial publications that are nationally recognized, such as
Business Week, Forbes, Fortune, Institutional Investor, Money and The Wall
Street Journal. If the Fund compares its performance to other funds or to
relevant indexes, the Fund's performance will be stated in the same terms in
which such comparative data and indexes are stated, which is normally total
return rather than yield. For these purposes the performance of the Fund, as
well as the performance of such investment companies or indexes, may not reflect
sales charges, which, if reflected, would reduce performance results.

The average annual total return of the Class A shares of the Fund for the one,
five and ten year periods ended June 30, 1998 was ___%, ___% and ___%,
respectively. The average annual total return for the Class B shares for the one
year period ended June 30, 1998, and for the period from July 17, 1995
(commencement of operations) through June 30, 1998, was ___% and ___%,
respectively. The average annual total return for the Class M shares for the one
year period ended June 30, 1998, and for the period from July 17, 1995
(commencement of operations) through June 30, 1998, was ___% and ___%,
respectively.

Reports and promotional literature may also contain the following information:
(i) a description of the gross national or domestic product and populations,
including but not limited to age characteristics, of various countries and
regions in which the Fund may invest, as compiled by various organizations, and
projections of such information; (ii) the performance of worldwide equity and
debt markets; (iii) the capitalization of U.S. and foreign stock markets
prepared or published by the International Finance Corporation, Morgan Stanley
Capital International or a similar financial organization; (iv) the geographic
distribution of the Fund's portfolio; (v) the major industries located in
various jurisdictions; (vi) the number of shareholders in the Fund or other
Pilgrim America Funds and the dollar amount of the assets under management;
(vii) descriptions of investing methods such as dollar-cost averaging, best
day/worst day scenarios, etc.; (viii) comparisons of the average price to
earnings ratio, price to book ratio, price to cash flow and relative currency
valuations of the Fund and individual stocks in the Fund's portfolio,
appropriate indices and descriptions of such comparisons; (ix) quotes from the
portfolio manager of the Fund or other industry specialists; (x) lists or
statistics of certain of the Fund's holdings including, but not limited to,
portfolio composition, sector weightings, portfolio turnover rate, number of
holdings, average market capitalization, and modern portfolio theory statistics;
(xi) NASDAQ symbols for each class of shares of the Fund, and (xii) descriptions
of the benefits of working with investment professionals in selecting
investments.

GENERAL INFORMATION

Capitalization and Voting Rights. The Articles of Incorporation of the Company
authorizes the issuance of shares of the Fund. The Company's authorized capital
stock consists of 500,000,000 shares of $.10 par value each, of which
200,000,000 shares are classified as shares of the Fund, 200,000,000 shares are
classified as shares of Pilgrim America MagnaCap Fund, and 100,000,000 shares
are not classified. All shares when issued are fully paid, non-assessable, and
redeemable. Shares have no preemptive rights. All shares have equal voting,
dividend and liquidation rights. Shares of the Company do not have cumulative
voting rights and, as such, holders of at least 50% of the shares voting for
Directors can elect all Directors and the remaining shareholders would not be
able to elect any Directors. Generally, there will not be annual meetings of
shareholders.

The Board of Directors may classify or reclassify any unissued shares of the
Fund into shares of any series by setting or changing in any one or more
respects, from time to time, prior to the issuance of such shares, the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, or qualifications, of such shares. Any such
classification or reclassification will comply with the provisions of the 1940
Act. The Board of Directors may create additional series (or classes of series)
of shares without shareholder approval. Any series or class of shares may be
terminated by a vote of the shareholders of such series or class entitled to
vote or by the Directors of the Company by written notice to shareholders of
such series or class. Shareholders may remove Directors from office by votes
cast at a meeting of shareholders or by written consent.

Custodian. The cash and securities owned by the Fund are held by Investors
Fiduciary Trust Company, Kansas City, Missouri, as Custodian, which takes no
part in the decisions relating to the purchase or sale of the Fund's portfolio
securities.

Independent Auditors. KPMG Peat Marwick LLP, 725 South Figueroa Street, Los
Angeles, California 90017, acts as independent auditors for the Fund.

Legal Counsel. Legal matters for the Fund are passed upon by Dechert Price &
Rhoads, 1775 Eye Street, N.W., Washington, D.C. 20006.

Other Information. The Fund is registered with the SEC as a management
investment company. Such registration does not involve supervision of the
management or policies of the Fund. The Prospectus and this Statement of
Additional Information omit certain of the information contained in the
Registration Statement filed with the Commission, and copies of such information
may be obtained from the Commission upon payment of the prescribed fee or
examined at the Commission in Washington, D.C. without charge.

Investors in the Fund will be kept informed of its progress through periodic
reports showing diversification of portfolio, statistical data and any other
significant data. Financial statements audited by independent public accountants
will be submitted to shareholders at least annually.

FINANCIAL STATEMENTS

The Financial Statements of the Fund for the year ended June 30, 1998 are
incorporated herein by reference from the Fund's Annual Report to Shareholders.
Copies of the Fund's Annual Report may be obtained without charge by contacting
the Fund at Suite 1200, 40 North Central Avenue, Phoenix, Arizona 85004, (800)
992-0180.

<PAGE>

PART C
OTHER INFORMATION

ITEM 24. Financial Statements and Exhibits

(a) Financial Statements

Contained in Part A:

Financial Highlights

Contained in Part B:

Financial Statements for the Registrant's Pilgrim America
MagnaCap Fund series are incorporated by reference from that
Fund's Annual Report to Shareholders for the fiscal year ended
June 30, 1998 (audited). Financial Statements for the
Registrant's Pilgrim America High Yield Fund series are
incorporated by reference from that Fund's Annual Report to
Shareholders for the fiscal year ended June 30, 1998
(audited).

(b) Exhibits

(1) Form of Articles of Restatement of Articles of
Incorporation(1)

(2) Form of Amended and Restated Bylaws(1)

(3) Not Applicable

(4) Not Applicable

(5) (A) Form of Investment Management Agreement -
High Yield Fund(1)

(B) Form of Investment Mamagement Agreement -
MagnaCap Fund(1)

(6) (A) Form of Underwriting Agreement(1)

(B) Form of Selling Group Agreement(1)

(7) Not Applicable

(8) (A) Form of Custody Agreement(1)

(B) Form of Recordkeeping Agreement(1)

(9) Form of Shareholder Servicing Agreement(1)

(10) Opinion and Consent of Counsel

(11) Consent of Independent Auditors*

(12) Not Applicable

(13) Form of Investment Letter(2)

(14) Not Applicable

(15) (A) Form of Service and Distribution Plan for
Class A Shares(1)

(B) Form of Service and Distribution Plan for
Class B Shares(1)

(16) Not Applicable

(17) Not Applicable

(18) Form of Multiple Class Plan Adopted Pursuant to Rule
18f-3(1)

(27) Financial Data Schedules

___________________

* To be filed by amendment.

(1) Incorporated by reference to Post-Effective Amendment No. 38
to the Registration Statement on Form N-1A as filed on
October 30, 1997.

(2) Previously filed as an exhibit on Registrant's Registration
Statement on Form N-1A

ITEM 25. Persons Controlled by or under Common Control with Registrant

None.

ITEM 26. Number of Holders of Securities

Number of Record Holders
Title of Class as of July 31, 1998

Pilgrim America MagnaCap Fund
Class A 25,089
Class B 7,809
Class M 1,772

Pilgrim America High Yield Fund
Class A 6,833
Class B 10,641
Class M 1,358

ITEM 27. Indemnification

Reference is made to Article VIII, Section 8 of the Registrant's
By-Laws filed as Exhibit 2.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to Directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against policy as expressed in the Act and
is, therefore unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Director, officer or controlling person of the Registrant
in the successful defense of any action, a suit or proceeding) is asserted by
such Director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

ITEM 28. Business and Other Connections of the Investment Advisers

Information as to the directors and officers of the Investment Manager,
together with information as to any other business, profession, vocation or

employment of a substantial nature engaged in by the directors and officers of
the Investment Manager in the last two years, is included in its application for
registration as an investment adviser on Form ADV (File No. 801-48282) filed
under the Investment Advisers Act of 1940 and is incorporated herein by
reference thereto.

ITEM 29. Principal Underwriters

(a) Pilgrim America Securities, Inc. is the principal underwriter for the
Registrant.

(b) Information as to the directors and officers of Pilgrim America
Securities, Inc., together with information as to any other business,
profession, vocation or employment of a substantial nature engaged in by the
directors and officers of the Distributor in the last two years, is included in
its application for registration as a broker-dealer on Form BD (File No.
8-48020) filed under the Securities Exchange Act of 1934 and is incorporated
herein by reference thereto.

ITEM 30. Location of Accounts and Records

The accounts, books or other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 will be kept by the
Registrant or its Shareholder Servicing Agent. (See Parts A and B).

ITEM 31. Management Services

None.

ITEM 32. Undertakings

(a) Not applicable.

(b) Not applicable.

(c) Registrant undertakes to furnish to each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders
upon request and without charge.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, Registrant has duly caused
this Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Phoenix and State of
Arizona on the 26th day of August, 1998.

PILGRIM AMERICA INVESTMENT FUNDS, INC.

By: /s/ Robert W. Stallings
Robert W. Stallings
Chairman

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the date indicated.

Signature Title Date

/s/ Robert W. Stallings Director and President August 26, 1998
Robert W. Stallings (Principal Executive Officer)

Director August 26, 1998
Mary A. Baldwin *

Director August 26, 1998
John P. Burke *

Director August 26, 1998
Al Burton *

Director August 26, 1998
Bruce S. Foerster *

Director August 26, 1998
Jock Patton *

Senior Vice President and August 26, 1998
Michael J. Roland * Principal Financial Officer

* By: /s/ Robert W. Stallings
Robert W. Stallings
Attorney-in-Fact**

** Powers of Attorney for the Directors are incorporated by reference to
Post-Effective Amendment No. 20 to the Registration Statement on Form N-1A
as filed on October 30, 1997. The Power of Attorney for Michael J. Roland
is included herein.

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being the
duly elected Principal Financial Officer of Pilgrim America Investment Funds,
Inc. (the "Fund"), constitutes and appoints Robert W. Stallings, James M.
Hennessy, Jeffrey S. Puretz, Jeffrey L. Steele, and Karen L. Anderberg and each
of them, his true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution for him in his name, place and stead, in any and
all capacities, to sign the Fund's registration statement and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and conforming all that said attorneys-in-fact and agents, or any of
them, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.

Dated: August 26, 1998

/s/ Michael J. Roland
Michael J. Roland

<PAGE>

EXHIBIT LIST

Exhibit Number Name of Exhibit

(5)(C) Form of Amendment to Investment Management
Agreement for High Yield Fund

(10) Opinion and Consent of Dechert Price & Rhoads

(27) Financial Data Schedules

AMENDMENT TO RESTATED
INVESTMENT MANAGEMENT AGREEMENT

The INVESTMENT MANAGEMENT AGREEMENT made as of the 7th day of April, 1995, and
restated on the 7th day of April, 1997, by and between PILGRIM AMERICA
INVESTMENT FUNDS, INC., (formerly Pilgrim Investment Funds, Inc.) a corporation
organized and existing under the laws of the State of Maryland (hereinafter
called the "Company") on behalf of its PILGRIM AMERICA HIGH YIELD FUND series
(formerly Pilgrim High Yield Fund) (the "Fund"), and PILGRIM AMERICA
INVESTMENTS, INC., a corporation organized and existing under the laws of the
State of Delaware (hereinafter called the "Manager"), is hereby amended as set
forth in this Amendment to the Investment Management Agreement, which is made as
of the ___ day of __________, 1998.

W I T N E S S E T H:

WHEREAS, the Fund is a series of the Company, an open-end management
investment company, registered as such under the Investment Company Act of 1940;
and

WHEREAS, the Manager is registered as an investment adviser under the
Investment Advisers Act of 1940, and is engaged in the business of supplying
investment advice, investment management and administrative services, as an
independent contractor; and

WHEREAS, the Company, on behalf of the Fund, and the Manager wish to
amend the Investment Management Agreement as provided below; and

NOW, THEREFORE, in consideration of the covenants and the mutual
promises in the Investment Management Agreement, the parties hereto, intending
to be legally bound hereby, mutually agree as follows:

1. Section 8(a) of the Investment Management Agreement is amended by
replacing the language thereof with the following paragraph:

8. (a) The Fund agrees to pay to the Manager, and the Manager
agrees to accept, as full compensation for all administrative and
investment management services furnished or provided to the Fund and as
full reimbursement for all expenses assumed by the Manager, a
management fee computed at an annual percentage rate of .60% of the
average daily net assets of the Fund.

2. This Amendment shall become effective as of the date indicated above
provided that it has been approved by the shareholders of the Fund at a
meeting held for that purpose.

IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and attested by their duly authorized officers, on
the day and year first above written.

PILGRIM AMERICA INVESTMENT FUNDS, INC.
(on behalf of its Pilgrim America High
Yield Fund series)

Attest: By:____________________________________

Title: _________________________ Title: ________________________________

PILGRIM AMERICA INVESTMENTS, INC.

Attest: By:____________________________________

Title: _________________________ Title: ________________________________

DECHERT PRICE & RHOADS
1775 Eye Street, N.W.
Washington, D.C.
Telephone: 202-261-3300
Fax: 202-261-3333

August 26, 1998

Pilgrim America Investment Funds, Inc.
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004-4424

Re: Pilgrim America Investment Funds, Inc.
(File No. 811-4504)

Dear Sirs:

In connection with the registration under the Securities Act of 1933,
as amended, of an indefinite number of shares of common stock of the Pilgrim
America MagnaCap Fund and Pilgrim America High Yield Fund series of Pilgrim
America Investment Funds, Inc. (the "Company"), we have examined such matters as
we have deemed necessary to give this opinion.

On the basis of the foregoing, it is our opinion that the shares have
been duly authorized and, when paid for as contemplated by the Company's
Registration Statement, will be validly issued, fully paid and non-assessable.

We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to all references to our firm therein.

Very truly yours,

/s/ Dechert Price & Rhoads

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